Category Killer: will iPhone be the death of handheld gaming?

With its 130,000 available apps, built-in camera and GPS capabilities, the iPhone sits squarely at the center of convergence. There's little question that the iPhone has taken a bite out of sales of some standalone devices, notably navigation units and cheap cameras.

But Sony Computer Entertainment claims it has turned the tables on the iPhone in the iPhone's core gaming market: People purchase the iPhone, enjoy certain games, and then get a Sony PSP to play it more fully. The iPhone has become an on-ramp to Sony PSP sales, a Sony executive says.

"We've seen a significant number of co-iPhone and PSP owners," says John Koller, director of hardware marketing at Sony Computer Entertainment. "We don't view the iPhone negatively in our sector. There's been more positive impact, in terms of attention turned to the handheld sector and the ability for consumers to graduate to PSP after playing iPhone games."

Just look at Electronic Arts Madden NFL 10, the popular football game named after the legendary coach and television commentator, Koller says. The 110 MB Madden NFL 10 was one of the top games on the iPhone deck when it came out on the iPhone for the first time last fall for US$10 (now selling for $7), whereas the 1.3 GB Madden NFL 10 for the Sony PSP costs around US$40.

Madden's iPhone release was followed by strong sales for both Madden on the Sony PSP and Sony PSP units themselves. "It's a lag effect," Koller says. As more and more big-name game developers target the iPhone platform with sophisticated games, Koller looks forward to new gamers seeking a richer gaming experience with the Sony PSP.

This wasn't always the case. Last year Neil Young, co-founder of iPhone app game developer ngmoco and an Electronic Arts alum, said at the Game Developers Conference in San Francisco: "Don't let the haters tell you [the iPhone] sucks compared to the DS or the PSP. It doesn't. It's good."

Sony, which still views the iPhone as a competitor, was also concerned about Apple's penchant for pouring buckets of marketing dollars into the iPhone, says Koller. Indeed, the iPhone did become a strong gaming platform. Last year, game apps, particularly role-playing ones, dominated the App Store.

For newer markets such as navigational devices, the iPhone threatened to gobble up first-time customers who would have bought the standalone device. "Portable navigation devices are definitely under attack from smartphones with GPS," Gartner analyst Van Baker told CIO.com in the article iPhone Apps: Five Markets Under Siege. "The devices will have to get cheaper to remain viable, and that is not an attractive segment going forward."

Adds Krishna Subramanian, founder of Mobclix, an operator of a mobile ad exchange marketplace: "I don't have to carry around my camera as much. If the iPhone had a better camera, the camera would stay at home even longer."

But the jury quickly returned with a verdict for standalone gaming devices: They had the best chance of warding off the iPhone's convergence calling. The gaming experience on the iPhone simply pales to the Sony PSP. Consider Madden NFL 10: 110 MB for the iPhone app, which is considered pretty big for the platform, verses 1.3 GB for the Sony PSP.

Mobclix's Subramanian agrees that the iPhone is great for game developers to market a gaming app that has taken, say, two years to develop for a standalone device. The iPhone can be a preview or teaser for the richer game version. "It's a good way to increase sales," he says.

"Apple has aided our business in ways that were an unintended consequence of the iPhone launch," Koller says. "Maybe Apple wasn't thinking that would happen, but it has."

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