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Dear Readers,

I would like to announce two milestones.  First, I am transitioning now into a consulting and advisory relationship with Digital Chocolate.  For its next stage of growth, Digital Chocolate is narrowing its focus and it made sense to get more streamlined.

Second, on Monday, May 28, 2012 it will be the 30th anniversary of the day that I formally incorporated and founded Electronic Arts.  I’ve enjoyed a fascinating career.  I joined Apple back in 1978 when we only had about 25 office workers and had only sold the first 1,000 Apples (none of which yet had disc drives, printers, monitors or any software apps).  I helped grow Apple in four years to 4,000 employees and worked closely with Steve Jobs and others to define the PC even as we know it today.  Then 12 years at EA, 12 at 3DO and now another 8 at Digital Chocolate.

I’ve always had a mission and purpose in my career and I’ve always cared about helping game developers to prosper so that they can make better games for the public.  And I’ve worked towards making everyone in the world a gamer – a vision that is indeed on its way to reality.  I’ve had the highs and lows and mixed results, but the journey has been extraordinary.

I will remain involved in digital media and games and be available for opportunities including mentoring, consulting, teaching, speaking and writing.  I can be reached via www.triphawkins.com or at triphawkins27@gmail.com.

I would like to thank everyone that has made this blog possible.  Happy Gaming!

Regards,

Trip Hawkins

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A BROWSER MANIFESTO – PART 16

THE REPUBLIC OF GAMING

This blog post completes The Browser Manifesto with the notion that Indie game developers can collectively have the power of Zynga if we collaborate to create The Republic of Gaming. United, we are as strong as anyone.

We are entering the age of convenient computing. The browser will become the next big game platform. Core gamers, or whales, will migrate by the millions to this new model and drive a $100 billion market based on free to play games with virtual goods. Distribution principles will be disrupted and some big players will fall while many newcomers succeed on the basis of great new games that use the Discovery business model. There is potential greatness in every game developer that will now have a chance to flourish and stand on its own, if we work together.

We need only recognize the benefits of collaboration and trust each other. We trust the World Wide Web and need to master how we leverage it. The same can be said for Google search, Facebook friends, email lists, ad networks, offer networks, affiliate networks, development tools and innovative partnerships like FreeGameLeaders.Com.

Your heart is free. Have the courage to follow it.

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A BROWSER MANIFESTO – PART 15

I’ve made the argument that game developers should build tools that allow them to support all platforms and screens from the same R&D thrust.  Among these platforms the open browser is the most critical because it is the one that is not controlled by a giant corporation with a profit motive.

It is always tempting to align with the titans because they are big, powerful, influential and know how to market themselves and their business propositions.  But historically, closed platforms don’t work any better for game developers than the Berlin Wall.  Prior to Nintendo there were many open media platforms including print, painting, photography, film, video, music.  While Philips invented the CD player they widely licensed their patents and charged a mere 6 cents per disc, and allowed complete freedom of operations and expression.  More recently, the World Wide Web was a gift to the public and we’ve seen again how a free, open, competitive platform can flourish.  But Nintendo ushered in a new generation of closed platforms with unappealing license terms for third-parties.  It has always been great for Nintendo, but there isn’t a single great game software company today that was built on the back of Nintendo.  In general, these licenses in the console industry drove up costs, crippled innovation and despite industry growth more than 90% of publishers that bore these costs were wiped out.

Rather than operating like the web or CD, Nintendo has been the reference point for many new closed platforms.  Digital licenses have gotten even worse because the licensors all reserve the right to constantly make unilateral changes, thereby creating a slippery slope for third-party game developers who are at the end of the whip.  Hot new digital platforms with high growth have been as alluring as the Pied Piper, promising developers liberation from publishers and retailers and a chance to be first-movers.  Thousands of developers followed because it seemed reasonable at the time.  Apple, for example seemed generous initially to be raking only 30% of the pot, because Western mobile carriers had been taking 50-75%.  But not enough science or even study of history went into the choice of 30% that has become a de facto standard.  The mobile carriers had failed, so that was not a good reference point.  DoCoMo succeeded by charging only 9%.  Other huge platform successes like the CD and the web were essentially free.  Where is the analysis or evidence that a 30% fee is viable for a third-party industry?  There isn’t any.  Instead we have many examples to the contrary.

Consider that for games, it will cost up to 30% of revenue for the cost of acquisition (also known as advertising, even after averaging this cost down to eCPA as a result of other free traffic sources).  Sales or VAT tax can be another 10% or more.  Server overhead to operate free client-server games can also be 10% or more.  If there is a 30% platform fee a game developer is now looking at variable costs eating up 80% or more of revenue, and they still have to cover product development and overhead costs.  From what I can tell from published industry stats, on many platforms these other costs are 50% or more of revenue so now we’re at 130% for a median performing app.  Given a bell curve distribution and 200,000 apps you’ll still have outliers like Angry Birds and Millionaire City but overall this is not a healthy economic picture for game developers.

Many other companies have simply copied the 30% rate from Apple, justifying it on the simple argument that Apple had set the standard.  Well, I guarantee you that Steve Jobs did not envision the cost structure and business model of today’s games and arrive at the 30% number based on a clear understanding of a win-win scenario that would create a healthy value system for game developers.  Steve Jobs may have been a genius but he never liked the game industry and he never understood it, nor did he care about the needs of game developers.  While we’re currently stuck with the number he made up, there are signs of increasing platform competition as Windows 8 will charge a reduced rate of 20% and Google+ launched at only a 5% fee.  But history has shown that as developers invest and help platform owners become strong, the rates go up.

Game developers need to wake up now and realize that they have too often been willing serfs in feudal kingdoms where they don’t own the soil that they till.  The open browser is the next big game platform.  But even if it wasn’t, it is the one, only and best place for a developer to plant their flag and invest in their future.  Because it is open and free!  Being strong in the browser will create even more synergy if you are also extending your reach with Facebook, Apple, Android and other platforms that you can branch to from the browser.  We can even tolerate their 30% tariffs if our technology leverages product investments to reach all screens and to provide more sources of free traffic.  But freedom for game developers must come first.  If we are free, we can consider a flanking move on a closed platform from a position of strength and we can negotiate with some bargaining power, perhaps even with a collective viewpoint.

There have been other freedom fights in game industry history and we’ve had our William Wallaces.  Activision’s founders were sued by their former bosses at Atari but their bid for independence survived.  Tengen challenged Nintendo but suffered a fatal loss.  I founded Electronic Arts to create a better business model for game developers.  The most important single thing I did at EA was to push my team to reverse-engineer the Sega Genesis so that EA could be liberated from the draconian license agreements that were offered in those days.  I founded 3DO as a bold attempt to help developers and improve the value chain, but 3DO was outflanked by Sony’s deeper pockets.  3DO reduced industry standard console license fees by 70% but Sony put them right back where they had been.  More than 900 companies signed 3DO licenses but they fled to Sony when Sony proved willing to take big losses to build their hardware installed base.  Sony executives did tell me later that they copied many business practices and licensing philosophies from 3DO, which made things better for developers.  With Steampowered.com, Valve pioneered digital distribution at a time when none of the PC game publishers would touch it.  Bigpoint and GameForge pioneered browser games when the mainstream didn’t care.  In every one of these cases, game developers took risks and ventured into unknown territory for the betterment of game developers and the public.  The courage of a few did help grow an industry that can now support a vastly larger number of global game developers.  Today, the open browser gives all game developers a chance to be courageous and help the industry reach for a new age that could be truly golden for game developers, not just for Apple, Facebook and Zynga.

The browser is worth fighting for.  We need to be free.  We are all William Wallaces.  Let’s follow our hearts.

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A BROWSER MANIFESTO – PART 14

The industry has worn out old terms like, “hardcore gamer”, “casual gamer” and “whale”. None of them perfectly explains the nature of the emerging digital gamer. Let’s call them dolphins. Why?

Dolphins love to play. They’re curious and intelligent.

Dolphins are social, and happy to play with both friends and strangers.

Dolphins are competitive. They’re carnivores. They’ll kill rivals in fights for territory, just like gamers.

They’re early Internet adopters (they call it “echolocation”).

They prefer casual, short sessions before they come up for air.

As for whales, they are actually just really big dolphins. Or you could say that dolphins are whales that have migrated to Hawaii because it is more casual and convenient. So dolphins may be whales that became more “streamlined” when they decided to join the revolution and play on the web and with their mobile phone.

The dolphin market is going to be huge!

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by Trip on February 21st, 2012 | Permalink | Comments (0)

A BROWSER MANIFESTO – PART 13

COME OUT OF THE CAVE, STEP INTO THE LIGHT

In The Republic, Plato uses the “Allegory of the Cave” to show how we can be deceived by forms and make the wrong assumptions about reality. Prisoners in the cave only see shadows and come to think of them as a reality that makes imprisonment tolerable. They could discover the truth and beauty of life if they would only just question their assumptions, work together to free themselves from their shackles and step outside into the light. Game developers today that have shackled themselves exclusively to any one platform are now in a similar cave.

Today’s biggest lament is app discovery, an issue heard most loudly and frequently about app stores now that there are hundreds of thousands of apps and the storefront screen can only give you brief listings of 5 or 10 of them at a time. It’s a valid concern. The stores are crowded with inventory and we can’t expect the customer to catch a particular fish by drinking an ocean through a straw. Viral techniques aren’t fixing the problem, either because the viral channels aren’t there, aren’t effective or the app requires a download that is inconvenient and requires ownership or membership of a particular platform. Making matters even more challenging, a reasonable methodology like Tapjoy was helping with both discovery and monetization on Facebook and Apple and got banned by both of them.

A game developer that depends on just one platform for all of its discovery is living in the past and relying on a distribution model over which they have neither control nor influence. Discovery business models are the solution. In the fundamental equation of Internet lift-to-drag, game developers need to keep effective CPA (eCPA) as low as possible by getting more free traffic, and need to dedicate themselves to optimizing retention and monetization rates to make lifetime customer value (LCV) as high as possible. When the rates are properly balanced, a game developer can use marketing acquisition to fund traffic at the nominal CPA. Free traffic that feeds off the CPA can then reduce eCPA such that a game is profitable more easily when LCV is greater than R&D + eCPA.

But too many developers are only on one platform and don’t get enough free traffic. Zynga got historic amounts of free traffic from Facebook in 2009 but those days are over even for Zynga. Mobile game developers are paying for the majority of their traffic because they aren’t in the browser where they could be using free viral and marketing methods to quadruple traffic for free.

But the companies that make standalone browser games are also paying for most of their traffic. This is because these game developers typically don’t have SNS experience, don’t want to use affiliate networks and don’t want to help competitors by doing cross-promotion.

Ladies and gentlemen, help each other and release your shackles!

At Digital Chocolate, we know that we cannot compete with the free traffic that Zynga can generate on Facebook. But Zynga lacks that advantage on other platforms. And when we compare ourselves against nearly all other competitors, we think we can gain an advantage by getting more than half of our traffic for free and having a much lower eCPA. We will use any method in the book to get traffic and we’ll even add some chapters to the book.

One big example is that we can allow a customer to try a free game in the convenience of the browser on a PC, but still be drive and enable them to play on other screens and devices as they prefer. A mobile game developer that has no browser version cannot do this.

An even bigger example is our willingness to collaborate with our Indie brethren to cross-promote and to lift ourselves as a group. While none of us can drive traffic like Apple, Google, Facebook or Zynga, any form of consortium in which we can help each other gives us scale that is comparable with the titans. We’re willing to do this between any two games with similar audiences, in the form of a link exchange of free trial offers on banner ads in the games. We’re also collaborating with our industry to create FreeGameLeaders.com, a cooperative game website that has its own traffic sources and operates as an even bigger link exchange. It’s a bit like the Yellow Pages except that it’s not owned by anyone with a profit motive. This kind of collaboration requires fairness, trust, openness, transparency and the recognition that we can all hang together or we can all hang separately. And it is set up as a collectively-owned non-profit to establish the right foundation for the future.

We want FreeGameLeaders.com to be the single most convenient way to try the best games of a certain type. This means instant free trials in the browser that don’t require plug-ins, installs, downloads or platform memberships. With a well-curated, merchandised and reviewed collection of the finest virtual goods games we can cross-promote well with each other and give the public consistently good experiences.

Together, we can all step out into the light and find a better reality.

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A BROWSER MANIFESTO – PART 12

Apple began a revolution when they launched the iPhone and their App Store.  The user experience was indeed revolutionary but in truth the app store was invented by NTT DoCoMo over a decade ago.  DoCoMo also had the good sense to give 91% of content fees back to the developers and to launch the mobile web and make it browser-based.  Today NTT DoCoMo is worth $74 billion.

But the Western media hadn’t seen or used i-mode in Japan.  They were comparing the Apple App Store to a feature phone using a 2G WAP deck that had not been created by a great technology company.  Thus Apple’s App Store looked new, great and the start of something big that might last for eternity.  Then again, so is the World Wide Web and they’re on a collision course that Apple cannot win.  The same thing happened to the PC desktop metaphor on its way to the web.  Instead of the web merely becoming a desktop app, it became the fundamental new way that people organize their use of computers.

Meanwhile, just like Microsoft with Windows, Google rapidly cloned the iPhone UI and began to give it away in the form of Android licenses.  There are a hundred equipment manufacturers that will turn to Android because Apple refuses to license their wonderful ecosystem to anyone.  It’s déjà vu as Apple’s smartphone market share has plummeted and an even faster decline lies just ahead with tablets.  You know this is bad for Apple when the biographer of Steve Jobs says his biggest betrayal, anger, and regret revolve around Android.

And anywhere that Android goes a good browser is sure to follow.  With the browser comes the real killer app, the World Wide Web.  We are now beginning to see hardware OEMs that make TVs, DVD players and tablets begin to use the Internet. More of them over time will realize there is more value in offering buttons to major browser services like Facebook and Google search than a button to a comparatively limited collection of apps.

This opens up new business model opportunities for OEMs that are better than licensing, or paying for, an ecosystem that in the end is inferior to Apple and identical to many rivals.  Every browser service button that an OEM puts on the landing page of their device could generate revenue for the OEM.  Instead of being stuck with wafer-thin manufacturing profit margins, they could take a bounty from each web software service provider.  They could also collaborate and partner with new services in which they get a share of new customer revenue that is generated.  The services would benefit because it would bring them new traffic on new devices and be cheaper than app stores.

All of this is now beginning to happen.  It will take a few years, because native apps do offer higher performance, just as desktop apps can outperform a cloud-based enterprise app (even Apple is now embracing the cloud).  Browser performance needs to migrate intact to mobile devices and stabilize; the migration of more customers from performance to convenience needs to be completed.

Also, the media is still caught up in their high opinion of app stores.  I’ve noticed how media reviews of new tablet devices in the last year are always comparing app stores and often forget to talk about the browser.  This will change rapidly before your eyes in the coming year.  Smart game developers are already cloud-based, and in the short-term will cover both the browser and native apps on the client side.  Over time the scale will tilt to the browser.

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A BROWSER MANIFESTO – PART 11

Historically most films have been live action shot by independent production teams, while most video games have been made by independent third-party developers under a similar kind of contract with a publisher. Pixar is radically different because they are a technology company that systematically leverages tools. We do something similar and like Pixar, have found that it is easier to implement under your own roof with your own staff. Just for starters this eliminates questions about direction, ownership and sharing. But there is much more to it.

To create a systematic competitive advantage a game developer needs to be building a system, not a game. The organization must become part of this system. It begins with corporate culture and values and you want people that have the desire and confidence to innovate and collaborate. Strategically you are going to be better off if your people believe they can make a great, new original game because you’ll get less market share in a clone war and less revenue share if you are always licensing other people’s brands. It will also make an enormous difference if you can convince everyone to use the same tools and to collaborate on a technology roadmap and the sharing of Best Practices. This way everyone can learn from internal experts about how to use tools and metrics to make games that drive traffic, retain customers and monetize better.

These kinds of things beg for a centralized organization with everyone in the same building to improve communications and management. However, I will instead argue for a global organization with several medium-sized offices. The market is global and if your employees aren’t global you’ll remain too foreign for many potential customers. Our office in Finland is an interesting melting pot all by itself because people born in 35 different countries have worked there. They have a good idea of global tastes because it is in the building. Costs are also much more competitive when you are global, as compared to only being in an expensive city like San Francisco or London. In many of our seven locations the turnover rate and organizational churn are also lower because we’re the best game company in town – simply because there are fewer competitors of note.

To make such a structure work we ask everyone to communicate in English, we make extensive use of tools like email, IM and Skype and we gratefully get people to participate in conference calls that have to span a lot of time zones. We are respectful and courteous about the demands and it works because everyone is learning much faster and advancing in their career. It seems like every office has some big brother offices that they aspire to follow, and some little brother offices that they are training and managing on some projects. This process allows the most advanced people to take on exciting new work by enabling them to hand down mastered categories to a new owner for whom it is a chance to advance and grow. Pixar continues to be a great role model for us. Harvard Business School was sufficiently fascinated by how we do it that they wrote a case study about Digital Chocolate: http://hbr.org/product/digital-chocolate/an/410049-PDF-ENG.

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A BROWSER MANIFESTO – PART 10

After doubling European farming output with the potato, there was a further tripling of value from another South American import: the bird droppings known as guano. Let’s apply the fertilizer metaphor to how we can make games better with a new technical discipline that I’ll call Discovery Engineering. In short, how do we start with the same game but add engineering and technology that brings in much more new daily traffic as well as more frequent return visits?

Our gaming guano starts with my very old concept that great games must be Simple, Hot and Deep. I’ve been saying this since I founded Electronic Arts in 1982 and it remains true nearly 30 years later. Consider the ocean, which is simple enough in concept and access that everyone likes to go to the beach. The babies are playing in the sand and puddles while the kids that can walk are getting wet and letting the lapping waves chase them. It’s hot and the graphics and sound are fantastic; everyone is enthralled by the spectacle and can’t get enough. And no matter how far you go it just keeps getting deeper until you need a surfboard or scuba gear and have to worry about sharks. The analogy I used earlier was how the depth satisfies the whales, also known as wolves, who generate your revenue. The wolves need to conquer the sheep that are represented by the casual players. Hence the game must appeal to everyone like the ocean. You cannot even begin to make this work if the game is not Simple, Hot and Deep.

There are additional things that can now be embodied in the game itself that will drive more traffic and return visits. Game mechanics that are very satisfying to play by yourself are of less value than mechanics that engage you in competition and contact with other players, which provokes both viral spread and higher return rates. Repeatable game mechanics that are driven more by algebra and stats, like Fantasy Sports, are not only more efficient to build than a content treadmill, but they provoke endless competitive comparisons leading to higher return rates and more spending.

Independent of the game, additional technology layers can be wrapped around it to generate more free traffic. The APIs of an SNS like Facebook are one great example. Apple makes it easy to send an email invitation but any of these ideas is going to be more effective if the game is not limited to one platform. Everyone that is looking at email or Facebook is but one click away from the browser, regardless of his or her preferred game platform. If your game runs in the browser without requiring any plug-ins, installs or memberships you have a better chance of getting the recipient of an invitation to try it right now. If they like a short trial session, they may later become a Facebook member or buy an iPhone but even if they don’t they can play your game in any case.

My favorite example of Discovery Engineering is how we do cross-promotion. Many people dislike this idea because they don’t understand it and are clinging to the past. Old School thinking says that customers go to destinations and that you would be crazy to distract them or let them exit prematurely once you have gone to all the trouble to bring them to your game. But if your game is in the browser, the player only invested in one simple click to get to you. Not only was the “investment” nothing, he’s busy right now, possibly at work or at school, and he’s going to be leaving your website within seconds regardless of how you treat him.

The principle of cross-promotion is to get something of value when, inevitably, he leaves. Hence we show a display ad banner offering a few other games to try. If the current game is no longer holding his attention, he’s a goner anyway. But if he clicks on a game in the banner, he goes to a competitor’s game for a free trial, and that competitor now owes our company a return click from one of their customers that we don’t already have. If your product is lousy this will only make you fail faster. But if you make a superior game you will double your customers this way, because your game is good enough that your departing player will remember to come back to your game again. And your competitor is giving you a new customer who will also like your game, so you’ll have two good customers instead of just one. Voila, your eCPA just dropped in half, which dramatically increases the chance that the game’s lifetime value will be profitable.

It is for the same reason that auto dealerships cluster together on the same street. But many game developers are too paranoid and distrusting to do this kind of cross-promotion. They’re afraid to help a competitor or they’re insecure or overly protective about their game. But we know this works for us; it’s the best guano we’ve got.

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A BROWSER MANIFESTO – PART 9

Game developers today need to disrupt themselves to control their destiny. This begins with thinking outside the box. Don’t be skeptical about the browser. Be humble and study new platforms and games. Regardless of your background, give new priority to the browser, Facebook, Flash, JavaScript, HTML5, iPad and Android. And consider potatoes, or if you prefer we can call it product engineering.

But first, potatoes! In medieval Europe the primary crop was wheat and a field could only be used every other year. In the even years it had to lie fallow so the nutrients could recover. The population of Europe was constrained until explorers returned from America with the spuds. It had taken 2,000 years for the population to reach 100 million but with the leverage of the potato it doubled again in one-tenth the time. Potatoes could grow underground in a fallow field, thereby doubling the value and productivity of a field. Good product engineering can do at least as well. Instead of building a game from scratch and reinventing the wheel for only one platform, the right tools and platform services will reduce cost of development while also reaching more platforms and customers.

Going cross-platform means you can reach more customers in more regions and keep your customers with you as they roam across different access points and screen sizes. It’s also less risky because you cover all the ground and don’t paint yourself into a corner. But you can’t do it all by hand, you need technology leverage. Develop game engines, code libraries and components that can be pulled off the shelf and used again and improved each time. With the right tools you can be assured of stability, reliability and audience scalability on the server backend. Tools can automate language localization and deployment of payment options. If you build a solid system for Business Intelligence (BI) then you can leverage that tool to give you customer behavioral metrics and analytics across all screens and platforms. We call ours the Magic Box. Without it you would need experienced magicians that are always in short supply. With the Magic Box, everyone can have the wisdom and become a magician.

The toughest boundary to cross is from PC browser to mobile app store, or vice versa. While the browser will end up on every screen and device, many of our client-server architected games can be even better if the client is a native app. The goal again is to not always be starting over, but instead to build on top of the shoulders of your technology to reach higher. Think Pixar. Rather than doing everything from scratch we try to automate code translation with a system we call the Black Box. We have tools and translators for the client side and for the server side. To make great quality you will always need to be an expert about each platform or device and how it is used by customers. The “last mile” will require some hand-crafting, particularly regarding the User Experience. Just don’t reinvent the wheel. The Incas did pretty well even though they never invented the wheel in the first place. But they discovered and pioneered the potato.

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A BROWSER MANIFESTO – PART 8

Game developers are optimists. Thank God for that. But it is no longer an acceptable business strategy to simply believe that you are the only one that is going to make a superior game. Sure, we can all look down from our gaming Olympus and find fault with FarmVille and Angry Birds, believing we can do better. In reality, we all have our hits and misses and we all make better and better games as the bar is raised higher. Yet we all regress to the mean. In today’s market we should make the best game we can, but that’s not a strategy, it’s a faith.

The life of a developer was simpler when they made the game and left it up to their publisher to pay their expenses, dictate the platform choice and get the customers. The first radical change was when Apple, Facebook and Android all offered to embrace developers directly and took both retailers and publishers out of the equation. There was quite a honeymoon period and it gave birth to Zynga and others and brought venture capital to many new game development companies. But the honeymoon is over. Now what?

The browser is the right platform focus. It is comprised of industry standards; is free, open and ubiquitous; and there are already nearly 3 billion computers that have browsers. Second, the browser is going to spread from PCs to tablets like wildfire, and there will be 1 billion tablets in the market within four years. The Apple iPad got the tablet market started and Apple always emphasizes their App Store and cripples the browser. If you read a review of a tablet in the last year you would therefore see a content focus on comparisons of apps and app stores. Within a year you will see the media focus shift to the far more important browser. After all, a tablet is a big screen experience that can and should run all World Wide Web content in its current form. And there will always be more content on the web than in any one app store. The browser will also blossom on Android smartphones because Google services need a good browser. Like water, we will see the browser find a way to show up on TVs and other boxes in the digital living room. One reason this is obvious is that nobody other than Apple can get their App Store because they won’t license it. This either leaves the remaining 100 global manufacturers all offering the same second-rate licensed app store and letting someone else control it, or it results in these companies realizing that they can get more content and more profit from using the open browser to provide the World Wide Web as their app store.

Anyone that focuses on the browser will therefore reach every screen in every room. The approach will be cloud-based on the server side and if app store client apps are desired they can be added as additional SKUs. Apps are important now but will decline versus the browser. I believe app stores will peak in the next few years and then decline gradually as the browser takes center stage on more platforms and screen sizes and with more and better games.

For certain, games need to be interoperable across screen sizes, locations, networks and platforms. This is strongly in the public interest, as every social medium in history got more than 100 times larger after it became interoperable. Two public habits change when this happens. First, we begin to get more social communication from a wider network and we realize that we can now communicate with everyone. Second, as we see and hear more people doing it, we recognize that it has become fashionable and we jump in and help it become pervasive.

On the marketing and distribution side, developers need to take charge of how they get traffic and make sure customers have a good first trial experience. Much of this can now be embodied within the game itself, including social game mechanics, viral features, shrewd tutorial design and metrics. Those are essentials but getting even more traffic requires business partners. Anyone who relies entirely on a destination like the Apple App Store, Amazon, GameStop, Steam or Android Market is continuing to engage in distribution thinking and it’s less efficient than if you stick to Discovery principles.

Developers should also think twice before throwing their support to anyone operating a closed platform with a license agreement that is subject to change. You’re not standing on solid ground, you’re a serf in a feudal system. To the extent that you gain an advantage in the value chain, they can take it away for themselves, or just kill it any time they like. While it is at least tempting to support a closed platform that already has hundreds of millions of customers, think three times before helping a smaller one get larger. These small ones are often charming and entrepreneurial and offer false freedom and special deals, because they still need to lure you in. Your pet baby crocodile may be very cute but after its first birthday it will see you only as food. The nascent platform may seem quite harmless, like a coordinated leaderboard community, but by providing games you are investing in them, becoming pregnant and helping them take control of your value chain. Furthermore, developers cannot continue to be ignorant or uncaring about how to acquire traffic, it is a fundamental need that the developer must learn to master and control.

So we are left with the question of how developers go cross-platform to all screens and make interoperable games, and how they take control of and get more traffic to their browser-based games. To answer these questions, developers need to disrupt themselves with something like potatoes and guano.

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IT’S NOT A PREDICTION, IT’S ALREADY HAPPENING IN ASIA

Asia has led the world in digital disruption of the game industry.

Only 12 years ago, Japan’s NTT DoCoMo gave birth to the data phone, the app store and the mobile web. Sony was still the global leader in games and just ten years ago had a corporate market value of $131 billion. But Japan has being transformed by the convenience and social value of mobile devices and the shift to digital media and the browser. Sony has since faced many difficult challenges and is now worth $18 billion, a decline of $113 billion. Where did the value go? NTT DoCoMo and KDDI have built new wireless digital networks and their combined corporate value is more than $100 billion. New social and mobile game services have been created by Gree, DeNA and Mixi, three public companies that together are now worth more than $10 billion. Remarkably, these three companies collectively have 70 million members – more than half the population of the country – and most of them are using the service through the browser on a feature phone. It’s the ultimate combination of casual media and convenience and proves how massive global markets can become in the future.

Korea, meanwhile, was never a strong market for the Japanese game consoles, but they did copy many of the NTT DoCoMo mobile innovations. They also gave birth to the PC Internet Café, which quickly established the popularity of MMOs (Massively Multiplayer Online games). This evolved rapidly into early leadership in “freemium” or F2P (“free to play”) games with virtual goods micro-transactions. Korea then invested in broadband and more PCs went into homes, expanding the MMO market, which then spread into China. Korea continued to match Japan in advanced mobile network penetration and digital social games with micro-transactions. These two countries lead the world by having a majority of their populations not just playing video games, but playing them in the browser over the Internet.

China is best known today as the world’s largest virtual goods market, now in the neighborhood of a $10 billion per year business. Most of that business is in MMOs that require an enormous native PC client download, which can then only be accessed and played on one PC that is not portable or wireless. You have to make an appointment with the room where the PC is located, so it is not very convenient.

Nor are MMOs especially social because they are demanding hardcore games that most of the public will not be willing to try. Hence it is not a mass market, not casual and not really social; MMO customers are mostly playing with strangers that share their hobby interest. China also banned Facebook, forced Google to shut down and the iPhone is very expensive. Another way in which the inevitable has been delayed is that China Mobile, the leading mobile operator, has never been an innovator and failed to copy the innovations that blossomed in Japan and Korea. The watched pot is eventually going to boil.

Despite China’s early leadership in proving the value of virtual goods, they will inevitably be disrupted severely by Discovery, by the browser, the smartphone, social networks and convenience. The Chinese MMO companies are already slowing down as customers are beginning this transition. But convenience and social value will expand the market significantly in the long-run, taking virtual goods in games in China above $20 billion and helping the global market reach $100 billion.

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A BROWSER MANIFESTO – PART 6

As Discovery replaces distribution business models, the disruption is hardly surprising. Game companies have to learn how to make a different kind of game, on a different platform and using a different business model. Fewer companies will recognize the need, face the challenge and execute well on the massive pivot that is required.

The most vulnerable companies will be those game industry players that currently only add value as channels and that don’t own either relevant technology or game brands and game IP. By analogy, Blockbuster left itself open to disruption by Netflix, and Netflix is disrupting itself as they shift from DVDs to digital streaming. But if movie streaming can easily move to the cloud, there is no reason that the film companies, like J.K. Rowling, cannot operate their own services. They could easily join together in a shared cloud back-end and subscription program – and eliminate Netflix. Similarly, I predicted the demise of RIMM and the Blackberry seven years ago when they had dominant control over mobile enterprise email. At the time they had a barrier to entry advantage in the form of distribution technology. But they did not own or control either email solutions or the email messages themselves.

In the game industry, Valve’s outstanding service, Steam, pioneered digital downloads of PC games and disrupted conventional retailers. Now, Steam is subject to disruption from live streaming services like Gaikai and OnLive.

In each of these examples, technology innovation as applied to distribution is being used as a barrier to entry. But the disruption is more fundamental and far-reaching with free games in the convenience of the browser. Why? Because the browser with a Discovery business model eliminates the need to depend on another company, either for distribution technology or distribution itself.

The necessary and fundamental conclusion from this is that every successful game company in the future will need to be vertically integrated and will need to own a critical mass of their own game IP. This will include new companies like Zynga, where they are building their own technology infrastructure to support original game brands. Traditional companies will have to invest more heavily in new digital game brands that they can own, and will have to acquire others. Anyone that assumes that they can survive only as a distribution middleman will be first commoditized and then made irrelevant and get wiped out. GameStop is particularly exposed at the moment. In trying to avoid becoming Blockbuster, they’ve made three acquisitions that have to do with digital distribution technologies. They don’t yet realize they will need to be a game content owner, too. From this standpoint, despite their recent success it may become an issue for Apple, Facebook and Google since none of them own any games. They’re thinking like distributors. One result of this is that Facebook inadvertently created Zynga, which really worked out well for Zynga. Were I Facebook, I would prefer to own Zynga.

Many prior media industries have faced a related issue. NBC and CBS would have been unable to build national radio and TV networks without also themselves operating studios that produced and owned a lot of their content, beginning with the news. The most profitable period in film history was when most theaters were owned by studios that mostly ran their own movies – until the government made them break it up. Nintendo has always been smart about this issue. They’ve always had the best “first party” games such as Mario, Zelda and Pokemon. They’ve also always offered licenses for third-parties that have been very profitable for Nintendo because the third-parties never had any negotiating leverage – they knew that Nintendo could, and would, succeed with or without them. Similarly, book, music and film companies have always built distribution pipes that they offer to third-parties. But they don’t let the third-parties become the tail wagging the dog – they always fund and produce plenty of their own content and therefore maintain the leverage in third-party negotiations. After I founded EA, I spent a decade building EA brands for this reason. But within three years I was also supplementing with distribution deals to help cover our overhead, and brand licenses were blended in over time.

But the Discovery model is a much more shocking and severe shift because it completely eliminates distribution. Most people are going to find this hard to believe and many companies are going to wait too long before they figure it out. The winners will invest early in browser game technologies, brands and IP and will plan correctly to own enough of their own content.

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A BROWSER MANIFESTO – PART 5

In a distribution business model, the consumer must journey to a destination where the product available to them has been chosen and arranged by the industry titans. In the Discovery Business Model, a consumer creates their own “store” that entirely consists of relevant product choices.

There are four parts of this product relevance. A consumer looking for something now enters a query into a search engine and they see organic results that are relevant to their desires, as well as sponsored results that are competing for their attention based on the interest implied by the query. Both are relevant but in unique ways – organic results are based on intellectual and theoretical relevance and the sponsored results are an auction where you are the winner.

Then there are all the recommendations from your friends. You get them in the form of links that appear in all your social media including Facebook, email, Twitter, Instant Messaging and even text messages. Finally, we now have recommendation engines figuring out what the consumer is actually doing and what they care about. So these four sources fill up a new kind of storefront.

The consumer then scans the headlines, text and images and clicks or taps on the ones that sound closest to what they are seeking. In the Discovery model, the consumer is then given an instant, free opportunity to actually try out the product in the browser, by being redirected to the cloud and to the website controlled by the owner of the content. There’s no distribution middleman or gatekeepers controlling access or shelf space; the consumer links directly to the product’s owner. For the consumer this requires no spending, no credit card on file, no downloads, no plug-ins, no spyware, nor any memberships in any clubs or networks. In fact you don’t even need to own the computer where you are using the browser. Nothing could be more convenient. “Social and Search” beat “Shelf”.

Because there is such a plurality of ways to spread a link socially and get free traffic, there is a tremendous increase in the efficiency of Cost Per Acquisition (effectiveCPA, or eCPA, and also true for improved CPC or CPI). Presuming the trial product experience is free, there is a quantum increase in customers actually having the product experience. Compare all of that to the number of people willing to schlep to the nearest GameStop to buy a $60 PC game. They have to pay and then won’t get to play until after they go home, spend an hour wrestling their graphics card and driver to the ground, and complete the install.

So we have a spectacular increase in efficiency of eCPA, trial completion and viral spread. Consumers are suddenly able to try a whole lot of stuff that they’ve never heard of, not unlike the early days of the World Wide Web and how the public stumbled on Yahoo!, Google, Facebook and other new-fangled services that have since become daily habits.

Just as traditional Hollywood brands have always trailed on the web, in Discovery it is not the brand that matters, it is the relevance of the free trial experience. The good IP (Intellectual Property) will win every time, and it will have been enabled by social media and browser Convenience with a Capital C. That’s how YouTube won and of course in the process they became a brand.

Unlike many channels that feel like the Soviet Union, here we have the truly open, free, fair, democratic and competitive World Wide Web. The playing field is level because scale is not required for success. Anyone that can make something good, something relevant, can win. They can control their own destiny and be free.

Fundamental Internet principles apply. You need to get some traffic somehow, somewhere. They need to like the experience. You need to get them to spread the word to bring your eCPA down. You need to make a form of content that monetizes, so that you have a favorable lift-to-drag ratio between acquisition and lifetime customer value. As soon as you confirm a favorable ratio even with 1,000 visitors, cha-ching, you know you can afford to reinvest your cash flow to drive more traffic and rapidly build up volume. New creations that have relevance will develop brand power at blinding speed. As an illustration, when a great Digital Chocolate game like Tower Bloxx was only available on feature phones through the primitive merchandise systems known as the carrier decks, you could do a Google search for that game and would only get 10,000 page hits. Then we put out a free browser version of the game and later adapted it to Facebook and today it has over 2,900,000 page hits. That’s a brand. We just launched a new game last year called Millionaire City; a Google search for “Millionaire City” + “game” yields almost 9,000,000 page hits. Our new game, Galaxy Life, is only a few days old and it has 270,000 page hits already.

Some platitudes come to mind. Content really is King. Knowledge is power. Power to the people. Power to the Indies. Liberte!

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A BROWSER MANIFESTO – PART 4

In The Master Switch, Tim Wu discusses the rapid consolidation of all media on the Internet and wonders if the information industry will again fall prey to monopolists, as it did in the past with radio, telephone, TV and film. Like many other industries that provoked antitrust action in the last century, these cases all involved distribution business models in which the winning factors always turn out to be scale, financial leverage and brands. Even today on the Internet we see many successful companies using distribution models, including Amazon and Apple. They are new gatekeepers that operate a new kind of consumer destination that commands access to a product category. Will these principles of distribution models continue to work and will one of these companies become the next Master Switch? In a word, no.

When I founded Electronic Arts, I planned and built a distribution pipeline as one of the key strategies. I’d worked through distribution challenges at Apple and was trying to apply Hollywood principles to software. Both Apple and Hollywood had succeeded by going direct to retailers and building control over the distribution pipeline to the consumer. EA built a pillar of strength in the same way using the same principles.

Here are my Top 10 key principles of distribution business models:

  1. 1. Limited physical space
  2. 2. Travel required to destination
  3. 3. Financial scale
  4. 4. Physical scale
  5. 5. Volume inventory buying/owing power
  6. 6. Brands needed for sell-through conviction
  7. 7. Higher cost to bring products to market
  8. 8. Consumer’s limited time/space at site
  9. 9. Significant infrastructure requirements
  10. 10. Must pay/owe in advance

To make just one example, after EA shipped some inventory the retailer owed us money. If their sell-through was not good, they wanted a markdown, returns or extended terms. We would then use that leverage to get them to buy even more inventory of yet another game. I use this example to show that even in a form of weakness – if our product was not good enough and was not selling through – we merely used it to further our advantage. Before long, EA could afford to buy brand exclusives such as the NFL. The consumer comes in and they want football and they have to pay $60 for it, and you have the shelf space and the only trusted brand. You get the drift.

To properly drive this model, you need financial leverage, scale and brands. Today, Internet companies like Amazon and Apple use these same principles and have adapted them to the Internet. Physical space is not really limited, but we all know that iTunes and Amazon have a front page and a bottomless back end and that it is highly relevant what is on the screen and above the fold; there is still “shelf space”. In effect, all the usual principles still apply. So does this suggest that companies like Apple will become The Master Switch? That is certainly how the music industry has felt in recent years. Is it really true going forward?

The opposite is true. For media, the distribution business model is in fact on its last legs. It will become obsolete due to a new business model based on the principles of Internet Discovery through the browser. YouTube began with two guys in a garage, no brand power and no scale. They faced numerous larger and stronger competitors. How did they win the online video category? How is it that The Financial Times and other newspapers are now able to bypass app stores? And what about J.K. Rowling? She would have gotten nowhere with the first Harry Potter book without turning the value chain over to a book publisher and book retailers, including Amazon. But what is she doing today with eBooks? She runs her own website, Pottermore.com. It’s in the browser. It’s cloud-based. It’s a Discovery model, like FT and YouTube.

In the Discovery Business Model, my entire Top 10 list of distribution principles go up in smoke. All ten are irrelevant. Because of this scale, financial leverage and even brands don’t control results. Hence The Master Switch cannot be controlled by traditional distribution thinkers. Instead, it is controlled by Google Search, which in turn, is kept honest by the public. This is the most radical change in business models in history because humans have used distribution models for thousands of years and they’re finally toast. We’ve used distribution models for so long that we’ve literally evolved with them and they’re in our DNA. That is why few people today really understand the massive disruption that is being caused by Discovery.

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A vibrant universe filled with intriguing planets, strange alien life forms and futuristic technology awaits players in Galaxy Life, Digital Chocolate’s new action-strategy game. Users will be able to play this game on Facebook and on Digital Chocolate, building a Starling colony into a flourishing alien metropolis, buzzing with innovation and excitement. Keep your colony happy by gathering resources and completing tasks.

Minerals and gold allow players to build facilities to replenish resources, amass an unparalleled intergalactic army, develop new technologies, and much, much, more.

But be warned: As colonies grow, so will competition for control of the galaxy.

The key to victory will be not only how well players manage their Starling colony, but also how they lead their Starlings into battle. Train and deploy different unit types like Flamethrowers, Marines, and Kamikaze soldiers to maximize your strategy. These units will come in handy when fighting off the Firebit and Sparragon armies.

Players must choose their allies wisely and can show their loyalty by helping complete tasks on their friends’ colonies. While diplomacy makes friends, battles can yield valuable resources and goods essential to continuing growth and progress. Pick your battles wisely!

Your destiny is in your hands. How you deploy your army, build your colony and defend the city walls will ultimately determine whether you succeed or fail, so choose wisely.

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A BROWSER MANIFESTO – PART 3

Social games are like a Super Bowl party or a trip to Vegas. It’s a party, and most of the people are there for social value and entertainment and are not hardcore about the football game or the gambling. Everyone loves a trip to Vegas! Among the group, however, there’s one hardcore guy who will be up late at the poker tables. He may win or lose $10,000. He’s a wolf among the sheep. This is now happening on a browser near you.

As a colleague told me, wolves go where the sheep are. The sheep are casual gamers that enjoy the fun of playing games for the social connections, but aren’t going to blow a gasket if they aren’t atop the leaderboards. Whales, or wolves in this analogy, want to be king of these worlds. It’s worth $1,000 to be a king. And if the sheep are playing casual games in the browser and on Facebook, then that is where the wolves are going to go to feed and build their kingdom.

The games need to be casual or the sheep can’t play them. But they need to offer depth and potential for mastery, so that the true gamers are challenged to exercise their gaming chops as they enjoy. Doing so allows them to feel superior to the sheep, who don’t mind; they are enjoying the socializing.To paraphrase Sagan, we’re going to have billions and billions of gamers in the browser. The games will be convenient, social and free, to maximize viral spread and trial. Virtual goods will be the best way to monetize games. When you charge a price for a game, you kill trial and viral spread. And when you have a fixed price, you lose additional money for customers that might have paid more, and you lose all the customers that would only have paid a lesser amount. For example, a console game sold in a shop for $60 cannot make more than $60, so it loses the “whale” that would have paid $1,000. It also loses the value shopper that would have paid $20 or $2. Virtual goods allow a game to collect whatever amount of money a customer can afford to spend.

What is best known about Zynga is that they have more than 200 million casual and social players on Facebook. But that enormous number is less important because those are the sheep, playing for free. What matters more is the wolves. Zynga recently divulged that they have about 7 million paying customers. What I believe is that most of their revenue comes from only 1 million of them. And if you can get 1 million players to spend $1,000 per year, you have a $1 billion business. But who is this whale that will pay $1,000 in a free game with virtual goods? He’s a formerly hardcore gamer that has bought console games in the past but has now crossed the divide to the browser because of convenience, and because that is where the sheep are, playing casual social games.

I also like to think of this as the beginning of the migration of the whales. Around the world there are 150 million homes where someone was hardcore enough about games to buy a console. Zynga would appear to have an enormous lead over competitors on Facebook, but when you think about it, they’ve likely only captured about 1% of these console gamers because the migration of the whales has just begun. There is a lot of market growth that remains up for grabs as the migration continues and as the browser moves beyond the PC to tablets, TVs and smartphones where Zynga is not strong. Enough of these core players migrate and we will have that $100 billion social/mobile market that is now forecasted. Many new and small game developers have a wide open shot at this trend.

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A BROWSER MANIFESTO – PART 2

Every kid over the age of five is learning about computers on a PC at school, and the browser is the starting point. Hence the browser and the cloud are becoming the fundamental public view of how to organize the use of computers. At work or school, users typically don’t own the 2 billion PCs they are using, but it doesn’t matter, our “stuff” is in the cloud and we can get to it. And every computer uses the browser the same way, so we always feel at home. We all use our hotel’s PC to go to the cloud and print our boarding passes. And when we get on equipment we actually own, we want to pick up right where we left off.

And the browser, with search, is so brain-dead simple that we can’t forget how to use it. It’s the new town square – where you go to find out what’s going on, who’s hot, to see and be seen, consume and to feel connected with life itself. It is no surprise that Internet access is expanding with home broadband, more WiFi hotspots, and mobile networks shifting to more pervasive 3G and 4G speed. Hence we don’t have to be sitting at a desk any longer and the browser, like water, is finding a way to tablets, smartphones and TV screens. There will be more devices running a browser in ten years than the population of Earth.

And all day long as billions of people sit in front of their displays, the browser will be open and in regular use. It will be the most convenient and the most social means by which to play a game session. And gamers will roam across different networks, equipment and screen sizes, picking up where they left off and having another short session that fits into their busy life. There will be new opportunities for game industry leadership as this pattern emerges on smartphone browsers, tablets and TVs, and as a new breed of game is made that is cross-platform and interoperable.

Part of the convenience argument is that developers can simply post new versions to the cloud and users will find them automatically. Nobody will have to worry about migrating their installed base of customers to new versions and consumers won’t have to think about it. Nor will consumers have to remember where they put the download – there won’t need to be one, and it will always be there in the cloud, even on equipment the consumer does not own.

Compared to downloads and apps, the browser has huge advantages in viral spread and ease of trial. While billions sit in front of their PCs every day, they also have all their social media open: their email, Facebook, IM, Skype, Twitter, games, etc. And it will be easy to feed a link from the games into one or all of the social channels. And equally easy for the friend that receives the link to click on it and try it, for free, without owning any specific gear, because it will be in the browser which is already there, and already open and ready. And it is free, and recommended by a friend! By contrast, with a downloaded app, I had to go to a specific store to get it, and it takes time to download it to a specific target machine. And then if I want my friend to follow my lead, he has to have the same equipment and complete the same steps. If I get an email on my PC telling me to download something to my tablet or phone, I have to switch devices and take extra steps. And if I want it on my home PC I’ll have to download it again. These speed bumps reduce trial and destroy viral spread.

With free to play (F2P) games in the browser, consumers get the highest quantity of games and “free” is the lowest price there is. We talk about thousands of apps but there are millions of free websites. And with search and bookmarks it’s all simple and organized, and consumers will quickly see for themselves which games have the qualities that they want. The cream will rise to the top and the browser will win on customer experience as well. Compare that to the unpleasant surprises we often have when we have bought a game in a store, only to be disappointed and poorer once we got home.

Not to be overlooked is the fact that everywhere they go, Google and Facebook depend on the browser and how good it is, and they’ll greatly influence a lot of OEM manufacturers (as already seen with Android). A hundred OEMs licensing their OS from a company that cares about the browser is going to result in a lot more device volume than any single company that is promoting a native app platform. Besides, tablets and smartphones are moving to multi-core CPUs and GPUs with longer battery life and developers and consumers will get increasing performance served right alongside the convenience and social value that make the browser win.

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COMPUTERS ARE IN THE ERA OF CONVENIENCE

Disruptive products are usually less powerful but offer a new benefit that appeals to a new audience. With computers in recent years it’s often been a social benefit that appeals to casual users. This would clearly explain the success of social networks, texting, and mobile phones. But another proven element in all cases of disruption is that traditional customers will, in the end, give up high performance and join the new casual users for reasons of convenience.

The dictionary defines convenience as, “Suited to a person’s needs, comfort or purpose; within easy reach, handy.” In the early days of flight, everyone that flew was a pilot. For decades, every driver of a car had to know how to drive a stick shift. But it is more convenient to be a passenger on a flight and to have a car with an automatic transmission.

Disruptive products come to a similar point where the key growth factor is to make the product more convenient. And this is largely the current status of computers in our lives. Media has gone digital entirely because it is more convenient. We can rarely find the time to go to a theater for a 3D, surround-sound, 70MM film; and yet we are constantly using DVDs, streaming from Netflix and clicking on YouTube links.

Music? For thousands of years you had to hear it live. After the invention of electronics we had a period of more than 50 years of improvements in HiFi, FM, stereo, and the penultimate Red Book CD Audio. But in the last 30 years it has been all about convenience as the performance quality of music has declined to listening, in some cases, to compressed MP3sthrough earbuds. But on the flipside, now you can listen to music even while jogging.

We get news instantly via the Internet, even though it lacks the tactile feel and spaciousness of a newspaper. We’re doing abrupt, coded SMS messages, IM and now email on our tiny screens. Whoever gets out nice stationery and writes a letter? And this new era of convenient computing is even shifting commerce and enterprise software to the cloud.

Games are the last to make this transition because they’re the most complex and demanding software data type. The last pillar of performance to fall to the greater need for convenience. But you could see this coming when hardcore gamers bought Nintendo Wii instead of the PS3 and when they began spending like whales in Zynga games.

Forty years ago you had to go to a bar to find a game of Pong. Since then gamers have been growing up, going through life stages that make them busier and busier. First we were in our parents’ home with lots of time and neighborhood friends. Then we shifted to college dormitories and had friends close by, but lots of homework. After graduation we got busy with jobs as our friends dispersed to a variety of cities. We could no longer play hardcore games because we weren’t in the same room with the console and our friends.

More importantly, we didn’t have the time. And then came spouses and children. We’re now playing on our work PCs, on social networks and on our mobile devices because it is more convenient and we have to sneak in a short play session whenever we can. It’s no wonder we adopted new social media to stay in touch with our scattering friends, and share entertainment online together. Most often, we’re doing it in the browser, which will become the next big game platform.

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