Opinion: Nintendo and Sony continue to underestimate iPhone

The advice offered by ancient Chinese tactician Sun Tzu in The Art of War has been lost on the makers of the DS and PSP: Nintendo and Sony have underestimated iPhone and iPod touch.

In the growing portable gaming marketplace, the concept of handheld games has expanded to include more than just game-specific devices. The rise of Apple handsets, Google's entry with Android phones, and myriad other devices are all competition in one form or another.

To dismiss them because they aren't 'handheld' is a cocky notion that puts success on the line. Anything that plays a game and can be held in your hands should be seen as a threat to the market share that Sony and most especially Nintendo has worked so hard to earn.

Sony Computer Entertainment America CEO Jack Tretton has often spoken about the PlayStation brand competing with all forms of entertainment, whether it be movies, music, television, or books.

Yet the company continues to downplay the impact iPhone and iPod touch has had on portable gaming. Just because iPhone handset can also make calls and play music, that doesn't diminish its capacity for powerful gaming experiences.

Quite the contrary. Apple has quietly raised a competitive gaming platform. Together, iPhone and iPod touch sell at rates significantly higher than Nintendo DS and DSi: the rate is nearly tripled for PSP. While there's some catching up before the total number of handsets eclipses the staggering DS base, there's little doubt iPhone and iPod touch will do it in due time.

To be fair, not all iPhone and iPod touch owners seek out games. Yet, the latent potential for gaming remains regardless of whether the handset is purchased for that purpose or not.

Regardless, arguing against the gaming credibility of iPod touch seems unwise. Apple has pivoted from marketing the device as a music player to a games machine. A stroll down Market St. in San Francisco is enough to prove the point: ads on bus stops and billboards trumpet iPod touch gaming.

Consumers aren't the only ones attracted to these devices. Major developers and publishers are flocking to iPhone and iPod touch as found in a new study from Game Developer Research. More than twice the number of developers are working with iPhone than DS and PSP.

Top tier publisher Ubisoft recently entered the iPhone space amidst a shift away from DS. Rockstar just released former DS-exclusive Grand Theft Auto: Chinatown Wars for iPhone Many prominent independent development studios are pursuing projects on iPhone that are cheaper to produce, allow for greater creative license, and avoid the difficulties of securing and pleasing a publishing partner.

Why, then, do Nintendo and Sony continue to pretend that iPhone doesn't exist while it proceeds to kick their collective butt?

It's not a winning strategy. Head of PSP marketing John Koller told us that he doesn't even think iPhone is a threat to PSP. Nintendo CEO Satoru Iwata jokes about being unimpressed with Apple's product line up. Sony's Koller has even been heard making an odd argument for Apple devices boosting PSP sales.

In truth, PSP sales were down in 2009. NPD Group shows a precipitous 35 per cent drop in PSP sales from those observed in 2008.

While the drop can't be solely attributed to iPhone and iPod touch, the competition certainly couldn't have helped. How Koller comes to the conclusion that iPhone helps PSP is unclear.

And don't even get started on the underwhelming stories of PSP Minis and DSiWare. Without proper support, there's no way these mechanisms can offer compelling digital content to compete with the App Store and the sales figures bear that out.

Announcing a new DS or relaunching PSPgo at a lower price won't do the trick. Sony and Nintendo must shift their thinking on portable gaming to accept the new reality that Apple is a competitor. Digital distribution is the new norm in the marketplace and the demands of consumers require more flexible pricing structures.

Sony and Nintendo need to put an end to the rhetoric and start working to deliver gaming experiences that are actually attractive to people, because every moment spent claiming iPhone and iPod touch aren't a threat is time enough for another gamer to take a bite from the Apple.