"Bigger than Hollywood"- that is how people describe the video-game industry according to a recent Economist article. Online gaming is the newest opportunity to bring interactive games to consumers. Consumers like games as they seemingly help to get relief from stress and give people a feel of social activity (!).

Most flattering were the market volume predictions for me.

"The market, worth $587m this year, is forecast to reach $3.8 billion by 2007, according to Informa Media Group; within four years 500m people---25% of mobile subscribers---will play on their phones."

As it is with all the forecasts of market sizes they are mostly inflated by analysts with a preference for hockey stick graphs. But there might be some serious development in this market. O2, a German mobile network provider, expects total gaming revenue in 2006 of � 2.3bn in Europe. � 460mn in Germany. O2 has sophisticated plans with mobile gaming as this presentation from 2002 suggests. Deloitte also forecasts

"...some serious money made with mobile gaming in 2003..."

. Unsurprisingly, there is no shortage of pundits labeling it the next big thing.

So what are the economics of the business? Mobilegaming has a good piece of an answer, describing the business case.

"Mobile gaming retains a distinct advantage over fixed technologies in that previously entertainment-impoverished situations can be occupied with gaming, the preferred form of entertainment for hundreds of millions of consumers. This is a tremendous advantage. This type of value-added service is expected to generate a great deal of revenue, because for millions of users, a mobile phone or dedicated wireless gaming device will be the primary means of occupying "dead time". Portable gaming consoles like Gameboy Advance will become less competitive if high-quality content is available on mobile devices, although convergence is a strong likelihood."

"(However), the incipient revenue models for mobile gaming are inadequate for producers and could cause the market to stagnate in the near term. However, the market is still young and will likely metamorphose in the next two years. Companies who have not established a near-term strategy for surviving the early stages of market growth may become victims of the wireless industry's lagging development of non-voice technologies and seeming unwillingness to provide sufficient compensation to third-party application providers."

Start-ups and several bigger industry players are all moving into this space, covering different places of the value chain from - Developers > Publishers > Wholesale > Retailers > Consumers. Nokia has invested strongly in it's N-Gage a gaming device that works as a phone. Sony will follow next year with the PlayStation Portable. Understandably start-ups have attacked the easier side of the value chain providing content (games) and selling them through mobile phone providers to consumers as downloadable games. There are i.e. Jamdat or Germany based Jamba.
In reality online gaming is a complex business with still low revenues.

"The key findings of the study are that the players in the mobile gaming industry see the future scenarios very differently: some believe in text-based games and some believe that premium 3D-games will take over the market very soon. Very few companies have made definite strategies that they would be pursuing; it seems rather, that the industry is currently lacking persistence and changes the focus whenever a new technology is introduced."

From my point of view, mobile gaming has the same shortcoming as many other value added services in the past. Businesses moving in just seeing 1.3bn consumers with a standardized device. The thinking goes "...there must be some market share for us, whatever we offer, let's try it..". This has proved wrong so far with WAP, I-mode (in Europe) and many other value added service. Consumers buy a mobile phone to make calls and write SMS (in Europe) and not for playing games or organizing their appointments. Not that they wouldn't embrace value added services but the usability, processor power and prizing were prohibitive. However mobile gaming has had some success in South Korea and Japan with usage rates of 15% and 35% respectively. So I'm positive that we will see more people using their mobile for interactive games, but I do not believe in the hockey stick graphs. Let's see in two years from now....