Apple Arcade — A New Foe has Appeared! On March 25, Apple announced Apple Arcade — a new subscription service featuring access to over 100 new and exclusive games. I want to unpack the context behind the announcement and lay out some open questions for the platform’s future. A Link to the Past Since the advent of Zynga and Farmville in 2009 a full 10 years ago, the world of gaming has shifted in an evolutionary way. The rise of freemium gaming has affected not only the biggest mobile games (Candy Crush, Clash of Clans, Pokemon Go) but PC and, to a certain extent console as well (League of Legends, Fortnite). The good ol’ days So what? Well, in order to adapt, gameplay and game design have had to evolve as well. Offering the game for free allowed for broad distribution. Meanwhile, in-app purchases (IAP), downloadable content (DLC) and ads provided revenue. Thanks to the success of Zynga, many in the game industry began methodically and obsessively breaking down metrics of engagement — how do you create an addicting first 5 minutes? First hour? Get the user to come back on the second day? How do we get a customer to pay for the first time at the top of the funnel? On the flip side, how do we make the game deep enough to reward the “whales” — the few, deep-pocketed, mega-payers who spend an outsized amount of all revenue in the game. The internal organs of the game have been shuffled around to optimize for player growth, retention and monetization. In the meantime, we’ve also seen a number of noteworthy hits on the indie game side. Platforms like Steam and the app stores also allow for a few independent developers to find a significant player base and make sufficient money to reach decent levels of profitability. To be clear though, the gap is vast. in revenue since launch. By contrast, Clash of Clans was at one point estimated to be making . Monument Valley reached over $25 million dollars $5.5m revenue daily and has exceeded $3b in total lifetime revenue Indie Hit? Free-to-play wonder? The world will never know. So with Arcade (and, arguably, Google with Stadia — a considerably different approach) we see Apple placing a bet on the latter. Apple has consistently watched games dominate the App Store’s rankings and revenues since its inception. As called out today, mobile devices comprise . Apple Arcade is the company’s attempt to continue capitalizing on that (at least, the iOS portion of the equation). But let’s delve into some of the open-ended questions laid out by this new direction. the single most popular gaming machine in existence PlayerUnknown What is the current market size of players willing to pay such a service? The most astute industry reports can’t accurately estimate how many will actually subscribe. My video game backlog is currently already 20 games long. I spent a full month playing Overcooked 2. What does it mean to have an 100+ more for me to try every month? What is the average number of games a subscriber will play each month? Does this replace the existing services or supplement them? (#déjàvucordcutters) What is the future market size? Is this a virtuous or vicious cycle? As with all markets, this is two-sided — if developers see this as the new land of opportunity, more will sign on. If players find the exclusive library increasingly appealing, more players will subscribe. But the opposite also holds — Ouya, Shield and Oculus can share their misgivings. Is there perhaps undiagnosed IAP fatigue? A portion of the broader player base has been vocally against IAP and *shudder* DLC add-ons. A gaming experience can quickly feel cheapened by pay-to-win strategies or story lines that paywall their own endings. But by offering the core game for free, has this try-before-you-buy behavior become engrained in players? Equally importantly, by being forced to discover IAP, have game developers become addicted to the huge recurring revenue streams? Can freemium and premium games co-exist peacefully in the future of the industry? Finally, how do economics actually play out for game developers? The current price is to be determined. Spotify and Netflix rode a fine line in appeasing content creators and paying out sufficient revenues. Does the game industry work the same way? I’m very curious to see how Arcade and Stadia play out over the next year. The games demoed on stage today were beautiful. Then again, Keynote demos usually are. I exited the game industry because the path to pursue revenue felt at odds with the games I loved as a kid. Will this offering to quality, lovingly crafted games pan out? Or is this 2019’s Apple Newsstand? Authors note: all views represented above are my own, from the perspective of a gamer and ex-game developer. There is no relevance to the time I spent at Apple or my being an AAPL stakeholder.

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