Software, Interrupted

As we move toward 2010, there is little question that mobile devices and smartphones will continue to have a huge impact on the market. Research firm Nielsen predicts that smartphones will dominate market share by the end of 2011, with the iPhone and Android-based phones taking the lead spots by a wide margin over traditional cell phones.

As devices mature, Wi-Fi connections become more ubiquitous, and 3G networks become more reliable, consumers will start looking for new ways to use their smartphones as replacements for other larger devices, such as PCs and TVs. One area that has been called out for growth is mobile video and TV, as well as streaming movies directly to a mobile device.

mSpot CEO and co-founder Daren Tsui made the case to me recently that full-length streaming movies will be important to consumers in 2010 because people want entertainment on the go and on demand. Research suggests that the adoption curve will be lead by young males 18- to 24-years-old and parents with young children looking to keep kids distracted.

Not surprisingly, mobile carriers are very supportive of mobile movies. According to Tsui, mSpot has been powering mobile movies on the Sprint wireless network for three years and is currently working with other carriers to bring the service to their user base. Realistically, carriers will always be happy about services they can offer and charge for, but the real question is if they could handle an influx of users sucking down huge amounts of bandwidth.

The obvious obstacle to be overcome is the strength of the data network. Streaming full-length movies to a phone is data-intensive, and therefore relies heavily on a strong, consistently reliable network. Assuming WiFi is available, this is a non-issue, but, as an example, AT&T's 3G network has struggled with the data usage of iPhone users and you can just imagine what will happen when millions of people start streaming movies.

Anecdotally, I can tell you that my wife and I bring an iPod Touch out with us to entertain my 2.5-year-old with various games and movies. Pocket-size mobile devices, iPod or otherwise, can be great learning tools as well as distractions when things are going sideways or when you just want to go to a restaurant and not chase a kid around. That said, my iPhone/AT&T network experience has been so spotty that I would likely opt to keep the content local, though in an ideal world new content could be downloaded in the background.

Assuming bandwidth is not an issue there are many possibilities for mobile content to take the place of traditional PCs or print media but in the near term mobile content will be only as good as its data connection.

The Nintendo Wii remains a force to be reckoned with in the video game world and new survey statistics along with new revenue streams suggest that Nintendo has still has something up it's sleeve.

Wii 'Theater no Ma'

(Credit: Nintendo)

The Wii and Wii-related gear were wished for twice as much as the Sony PS3 and Xbox 360 combined though 38 percent of people wanted something other than products--namely cash, and in one case, Satan (I assume for a visit, not as a full-time family member.)

And while a wish, or a request for a gift, is no guarantee that a product will actually sell, there is a dearth of exciting gifts for this holiday season, leaving room for the Wii and other less-new products to be successful.

Just a few weeks ago, Electronic Arts CEO John Riccitiello commented that the "Wii platform has been a little weaker than we had anticipated" but Nintendo of America's executive vice president of sales and marketing Cammie Dunaway was extremely positive about the current sales and the future growth.

But, the focus in the U.S. remains on selling more titles and accessories, not branching out into additional services such as we've seen with Microsoft's Xbox Live, which provides access to Facebook, Twitter, and Last.fm through the console.

Services supporting the Wii are much more sophisticated in Nintendo's home country of Japan, where the company previously launched an advertising program to turn family time into a commercial endeavor and a catering channel that lets users order food from a variety of vendors directly through the console, delivered directly to their front door.

This weekend Nintendo added to the Wii's variety of interactive offerings, with a paid video download service for Japan. "Theater no Ma" will offer a range of movies, anime and other paid content from providers including Walt Disney and Sesame Workshop.

Downloading rental content onto game consoles and set-top boxes has been common in the U.S for awhile, but the reason this service could prove meaningful in Japan is because Nintendo researchers previously found that 87 percent of Wii users use the console on the biggest screen in the house, which is still the one in the living room.

If smartphones aren't already helping us navigate the modern world, they are certainly on track to do so soon.

In Gartner's top 10 predictions for how consumers will use their mobile devices in the year 2012, location-based services landed the No. 2 position, just behind money transfer.

There aren't many surprises on the list, released Wednesday by the analyst firm, though I would have expected to see gaming enter the top 10 consumer applications for mobile devices within the next two years, especially considering the firm previously predicted that mobile gaming revenue would experience a compound annual growth rate of 10.2 percent between 2007 and 2011 with worldwide end-user spending reaching $6.3 billion in 2011.

Gartner's list is based on impact to consumers and industry players, with consideration of revenue, loyalty, business model, consumer value and estimated market penetration. Depending on where you focus geographically, I would imagine that the order of this list could change pretty dramatically. For instance, mobile money transfer is popular in Asia and emerging nations in Africa, but far less common in the United States.

As with any other list of analyst predictions, there are a huge number of variables that can affect trends from one year to the next. Money transfer and near-field communication services are applications that could function on any kind of mobile device, whereas browsing and advertising are likely more relevant to smartphones, which Gartner expects to account for 45.5 percent of all mobile phone sales in 2013, up from just over 9 percent in 2008.

Previously, Gartner projected mobile ad spending worldwide to grow 74 pecent in 2009 to $913.5 million, but not really accelerate until 2011, when advertisers are expected to boost mobile spending as part of an overall shift toward digital marketing channels. By 2013, the firm expects mobile ad spending to surpass $13 billion, with the Asia-Pacific region leading the way, followed by North America and Europe.

Gartner's top 10 consumer mobile applications for 2012:

1. Money transfer
2. Location-based services
3. Mobile search
4. Mobile browsing
5. Mobile health monitoring
6. Mobile payment
7. Near-field communication services
8. Mobile advertising
9. Mobile instant messaging
10. Mobile music

Research and consulting firm Tower Group predicted earlier this year that the number of people actively using mobile banking in the U.S. "will grow by more than five times by the end of 2013" representing a compound annual growth rate of 51.8 percent.

Gartner's complete list with accompanying analysis is available in the firm's newsroom.

Parallel Kingdom

(Credit: Parallel Kingdom)

Gilbertson's travails with the iPhone application acceptance process illustrates why Apple's gating of applications is a troubling reality for developers--and for consumers. And while it's understandable to have a gating mechanism in place, if Apple wants to remain at the top of the mobile application space, it so heavily dominates, the company needs to commit more resources to not just the application review process, but in communicating with developers. As of my last e-mail exchange with Gilbertson, Apple had not responded for more than six days. My call to App Store PR has gone unreturned for about 18 hours as of this post.

Apple's acceptance policies can be shockingly difficult to navigate, so much so that some have marveled at the fact that an ecosystem could build up at all.The fact that iPhone applications are written in Objective C, a previously uncommon programming language, is in and of itself a show-stopper for many developers, but that obviously hasn't stopped development.

Earlier today Ars Technica wrote about several prominent developer including Facebook's Joe Hewitt, Second Gear's Justin Williams, and longtime Mac software developer Rogue Amoeba, all of whom recently "decided that enough is enough" and that they would abandon iPhone development efforts. And while each cites different reasons, the underlying thread is that they've had enough of waiting for Apple to distribute their apps, an instantaneous effort on the Internet.

While restrictive or complex policies are unlikely to stop the iPhone juggernaut, they can be very painful reminders of what would happen if we regress 15 years to the unfortunate walled gardens of AOL. Tim O'Reilly reminded us of the risk of the closed Web recently, commenting that "anyone can put up a Web site, or launch a new Windows or Mac OS X or Linux application, without anyone's permission. But put an app onto the iPhone? That requires Apple's blessing."

It's unlikely that a few developers falling off of the iPhone train will have a dramatic effect on the growth of the market, but this kind of unhappiness can easily lead to a backlash. The big question is if another mobile platform can take the place of the iPhone.

Android has arguably the best chance, but it currently struggles due to immaturity of its own application ecosystem. Nonetheless, there is a huge revenue opportunity for an open-Web approach to mobile applications. It remains to be seen if Android can live up to the hype and not fall into the same trappings as the App Store. For all of Apple's sins in how they run that business, it's undeniable that it remains hugely successful.

With Electronic Arts' recent $400 million purchase of Playfish, social games are all the rage in today's tech industry. That's no surprise: lightweight games on social networks (which people usually play while they're goofing off at work) and social games have attracted huge player numbers with the biggest titles boasting 20 million to 60 million regular players.

City of Eternals.

(Credit: Ohai)

But here's the worst kept secret about the genre: most social games aren't very, well, fun. They offer limited interactivity, game play challenge, and graphics. Consequently, players aren't invested enough to spend much money on them, especially compared to "hard-core" massively multiplayer-online (MMO) games. Even with the better social games, average revenue per users is less than a $1 per person.

By contrast, millions of World of Warcraft players willingly pay $15 a month in subscription fees alone. But, what MMOs like WoW have in revenue, they lack in growth due to the high technical hurdles and subject matter. WoW seems to have tapped out at around 12 million players, far less than the largest social games. And while the sustained revenue is great, attracting new players remains a challenge.

Enter City of Eternals, a Web-based MMO with a modern vampire theme from a new start-up called Ohai. After a long conversation with company CEO Susan Wu, a pioneer in the online gaming and virtual goods space, there are a number of reasons I think Ohai has the potential to succeed in the sweet spot between social games and hard-core gamer MMOs, and why the shift to social connection could become gaming's next big thing.

Ease of play
The biggest game platform isn't the Nintendo Wii or the iPhone, it's Flash, a browser plug-in installed on more than 99 percent of the world's PCs. An estimated 200 million people already play casual Flash-based games.

And while most MMOs require a huge client install, Ohai CTO and game industry veteran Don Neufeld (Everquest II, PlanetSide), and his development team (Free Realms, Lord of the Rings Online, Star Wars Galaxies, Dungeons and Dragons Online) have re-engineered Flash into an MMO platform that pretty much anyone can play, without having to install additional software or hardware upgrades. As Wu put it, this means Ohai can build "Games for your aunt who plays FarmVille on Facebook and your cousin who can't play World of Warcraft on his school PC."

Deep social network integration
City of Eternals is fully integrated with Facebook and soon Twitter, but that doesn't mean the game is only playable within the social network. Players' Facebook profiles follow them into the vampire world, so whenever you're curious, you can click on a fellow vampire, and check their Facebook profile. This is the first time I've seen this feature in any MMO, and it brings in some new possibilities--making it much easier to socialize (and of course flirt) within the game. Wu told me City of Eternals' gender spread is 50-50 (extremely rare, compared with male-dominated MMOs), so I wouldn't be surprised if it became a major online hotspot for socializing. Especially since the game isn't about geeky elves and orcs, but far more popular vampires--see below.

Subject matter
The Twilight book series has sold more than 85 million copies worldwide; the Underworld movie franchise has brought in more than $300 million in theatrical sales; and TV's True Blood and Vampire Diaries both have huge cult followings. Vampires are obviously pervasive throughout popular culture, but there's yet to be a full-fledged vampire MMO.

Still in Alpha stage, Wu told me that players average 12 logins per day in the game, with an average session length of 5 to 6 minutes, fulfilling one of the company's goals of making a "bite-sized MMO."

City of Eternals is Ohai's first of many of what they call "MMOs for everyone." Of course, there's still a lot of unknown variables. The vampire craze may wane too soon, and as the Electronic Arts purchase suggests, the competition is huge. Maybe I'm crazy, but by next year, I think there's a good chance the most popular MMO on the market won't be World of Warcraft, but City of Eternals, or another game that crosses the boundaries between MMO and socialized gaming.

As much as Twitter is a powerful communication and social application, it's a relatively simple Web app. As part of a new contest sponsored by Engine Yard, Ruby on Rails developers are going to turn Twitter into their own application server.

The contest asks developers to program the "Worst App Server Technology Ever" (Waste) using Twitter as the message bus. While much of the contest is being done tongue-in-cheek, it's actually an interesting use case to see if a service like Twitter can take the place of a more traditional message bus like IBM MQ series or AMQP (Advanced Message Queuing Protocol).

Contest participants register up to five Twitter handles and code the function that each would perform in a program. When the contest challenge is issued on November 12, participants will have to use at least 10 of the pre-designated Twitter handles (other than their own) as endpoints to perform functions on data sets located at unique URLs. All messages will work through a series of automated public Twitter replies.

This is somewhere between an application server, a social game, the "telephone game" and service-oriented architecture (SOA) where Twitter plays the role of the enterprise service bus and the Twitter API is the broker between data sources. SOA relies on services exposing their functionality other applications and services can read to understand how to utilize those services. In this case, Twitter can be used as an application server in the cloud. (Take that buzzword bingo players.)

The funny thing is that as absurd and comical as this sounded when the Engine Yard guys told me about it, I've started to think about this as a way to possibly achieve a real technological breakthrough. And while I don't think that Twitter will be the "cloud bus," I do think that there is a lot to be learned from applying this type of constraint to a data flow process.

Engine Yard VP of marketing Michael Mullany told me that the contest shows how developers can leverage a relatively straightforward platform in innovative ways. But it's also another example of an interesting marketing effort to use Twitter as the vehicle for one's own benefit. Also, in true open source fashion, developers wind up building new applications based on code written by their peers.

Let's hope Twitter can handle the attention and developers are not greeted by the ever-lurking fail whale. You can check out the contest and learn more details at Engineyard.com

I attended the Virtual Goods Summit on Friday and walked away struggling to figure what topics might be interesting to write about. My net takeaway is that not much has changed in the year that I've been writing about social gaming and virtual goods, with the exception of two facts:

1. Virtual good providers are being lauded as the next big thing to replace advertising
2. There's something weird going on with the ads and offers that have taken over the more traditional banner advertising role

There is no question that virtual goods have become an integral part of social network revenue streams. And the mainstream media has finally started to catch on.

But, I didn't realize the oddities of the way users are being monetized until I attended the event and saw the heavy emphasis not just on monetizing users but on doing so in a way that was transparent and non-intrusive. Theoretically, it's a good idea, but in practice, many of the "offer" providers are purposely or inadvertently running Ponzi schemes.

TechCrunch's Michael Arrington arrived at my second point above and took the theory much further with data that shows many social gaming offers and advertising practices amount to little more than a complicated scam that gets people in the door for free only to take advantage of their lack of understanding of what they've technically agreed to in the various offers.

In short, these games try to get people to pay cash for in game currency so they can level up faster and have a better overall experience. Which is fine. But for users who won't pay cash, a wide variety of "offers" are available where they can get in-game currency in exchange for lead gen-type offers. Most of these offers are bad for consumers because it confusingly gets them to pay far more for in-game currency than if they just paid cash (there are notable exceptions, but the scammy stuff tends to crowd out the legitimate offers). And it's also bad for legitimate advertisers.

Gamers are not just making purchases to enhance their gaming experience but also selling virtual assets to other players, according to new research from video game market research firm VGMarket.

Sales of virtual goods are expected to reach $1 billion this year and already generate near $4 billion annually in China. But there are some challenges, primarily the fact that once you convert your real money to virtual cash you can't readily get the dough back out.

The research revealed that in-game currency is the most frequently sold digital good from player to player and that two out of three sellers sold in-game currency in the last 12 months, earning a median of $22. PlaySpan, a provider of monetization and payment solutions for games and virtual worlds and sponsor of the research, considers that to be good news as its platform enables game developers to provide player to player marketplaces for their players. In addition, the PlaySpan Marketplace currently provides a secondary market for IMVU players to buy and sell goods as well.

One out of two sellers made a sale in a social network game over the last 12 months and earned a median of $50, while one out of four sellers made a sale in a free-to-play game over the last 12 months, with their median earning being $98, or nearly double that on social networks.

Eric Hartness, chief marketing officer at PlaySpan, told me that the secondary market is a boon for games, adding value, real and perceived, to all players by associating a real world dollar value on their playing time, game accounts, and digital items.

Online gaming, like many other markets tends to have a few big winners, in the case of China's major game sites, three companies enjoy up more than 50 percent of the market share.

• Tencent Holdings--20.2 percent of the market and 1.24 billion yuan ($181 million) in revenue
• Shanda Games--20 percent of the market and 1.23 billion yuan ($180 million) in revenue
• NetEase.com--12.7 percent of the market and 780 million yuan ($114 million) in revenue

Tencent makes money from premium instant messaging services, pet penguins (seriously), and page decorations that allow users to customize their game space.

Earlier this year, Pearl Research predicted the Chinese online gaming market would reach $5.5 billion by 2012. At this rate, it's almost guaranteed to go beyond that estimate.

Meanwhile, back in the U.S., the latest Inside Virtual Goods report predicts that trading in online virtual goods will top $1 billion in 2009. We've certainly seen a big uptick in the purchase and interest in virtual goods--especially in the recession where people are looking for more bite-size gifts.

The report cites Zynga as the leader in the U.S. with revenue estimated at $300 million. Who knew you could make that kind of money selling poker chips, mystery crates, home improvements and flame throwers?