Let’s take a look at disruptive products as we head into the annual Game Developers Conference this week.  The traditional console game market has taken a beating in the last year or two.  On the PC and web, conventional games have also flattened out.  This is especially true for games that have a price tag but many websites offering conventional free games have also suffered from declining traffic.  Even World of Warcraft seems to have peaked as a conventional MMO game with a subscription model, and may sell more virtual items within a year.

Instead we have seen tremendous growth in mobile app store games, Facebook games and free-to-play browser games with virtual items.  This is vividly illustrated in Digital Chocolate’s own numbers.  Last year we had 50 million game downloads in our first year on the iPhone.  In just the last two weeks we’ve tripled our daily Facebook audience and are now reaching more than 1 million players per month.  And our fastest area of revenue growth is in virtual items on Facebook.

In short, the iPhone and Facebook platforms are classic examples of disruptive products as per Clayton Christensen. For traditional gamers, the purpose of a game is to be entertained and to feel good by winning the game.  Hence the game is an end in itself.  With disruption, a new market emerges with customers who care about a new benefit that is offered at a higher level of simplicity and convenience.  A billion people that do not consider themselves gamers are now playing new kinds of casual games that are not an end; they are a means to an end.  And the end, or key new benefit, is the social value.

Figuratively speaking, we all used to live in a small village.  We saw the same family members and intimate friends every day.  We had fabulous social lives.  Then we invented cars, suburbs, huge cities and television.  Pretty soon we were commuting alone; not knowing the people around us, not even our neighbors; and huddling at home in front of our TV.  We’ve gotten lonely.  And a bad social life is as deadly as smoking.  Don’t believe that?  You won’t be surprised that a smoker can cut his risk of death in half if they stop smoking.  But studies have found that if the same person is not a member of a club, they can join a club and keep on smoking, and the social benefits of the club will equally cut their risk of death in half.  We all know about the harmful effects of a blackened lung and it turns out a blackened social life is just as deadly.

This need is now so pervasive that it has even diverted traditional hardcore gamers, a later stage phenomenon in product disruption.  A gamer that bought the PlayStation had their friends over and walloped them at games like Madden Football.  Then he upgraded to the PlayStation 2, but after awhile the friends wouldn’t play with him.  It shouldn’t have been a huge surprise when this guy did not buy the PlayStation 3.  Instead he purchased casual social games like the Nintendo Wii and Guitar Hero.

And now he and his friends have iPhones and are on Facebook, also known as, “The Website That Ate The Internet”.  These are network-connected and social platforms that offer tremendous new levels of simplicity and convenience.  These platforms are instantly available and the apps are free and easy to use.  And social!  The disruption cycle is being completed as both new customers and traditional customers make the shift to the disruptive products.

There has been much criticism from traditional corners about first-generation Facebook games.  Admittedly the games sometime seem like spam or viruses and probably irritate a lot of Facebook users.  And with shallow gameplay, many of these games have huge churn rates where consumers “drive by” but don’t get engaged in the game.  But disruptive products always start out less powerful and with fewer features than their predecessors and they add more power over time.  A new generation of Facebook social games is on the cusp and we will be seeing big leaps in areas including innovation, the quality of art, the quantity of animation, the depth of gameplay and the legitimacy of really playing socially with your friends instead of just “spamming” them to adopt the lost cow.  Try NanoTowns™, NanoStar™ Castles and NanoStar™ Siege in the coming weeks and see if you agree.

(http://apps.facebook.com/nanotowns/)

The recently-hot New York 3D Rollercoaster Rush is our 15^th iPhone game to chart in the Top 5 in App Store downloads. Not bad for only 14 months in the App Store. We’re equally thrilled with the fact that Apple customers have given more 5-star reviews to Digital Chocolate than any other app publisher, ever. Overall we have nearly 80 apps that have an average review score of at least 3 ½ stars. And our quality is improving as we’ve learned more about the iPhone and have done more with swiping, 3D graphics and tilting with the accelerometer. Our outstanding new mini golf game, 3D Mini Golf Challenge, is vastly better than our older mini golf game from last year. And several new games from the last few months are averaging 4 stars for their paid versions including:

• • 3D Brick Breaker Revolution 2
• • California Gold Rush 2
• •Tropical Dreams 3D
• • Crazy Penguin Party
• • Pirate Ship Battles
• • Fantasy Warrior: Good & Evil
• • Fare City
• • Crazy Penguin Christmas
• • Jurassic 3D Rollercoaster Rush 2
• • Dictator Defense
• • New York 3D Rollercoaster Rush
• • 3D Mini Golf Challenge

We appreciate the appreciation! Of these, my personal favorite is Pirate Ship Battles.

Regarding the pugilists, we’ve finally addressed some server scale issues and are unleashing the beast: MMA Pro Fighter is taking pummeling to a new level on Facebook and just last week, the game took a 45% leap in Daily Average Users. Only a handful of other games grew more users at a faster rate.

My colleagues are having way too much fun by assigning me to menial tasks in our new Facebook social game, NanoTowns™: http://apps.facebook.com/nanotowns/. It turns out to be a lot of fun not just to organize and make your own simulation of a town, but to use these job assignments as a fun new way to trash-talk and engage your friends.

NanoTowns is brand-new this week and feature-rich. You start out with one short street and one coffee house building but there are tons of ways you can personalize, expand your town and make it unique. There are nearly 100 different types of functional buildings and more than 100 quests to take care of your citizens. You can make myriad changes to décor and street layouts and can even add cars that move up and down your streets. NanoTowns quickly becomes both a simple business sim and a very personal form of creative expression, with much more variety and play value than other games. The marketplace has eclectic items like beer goggles, dried prunes and special gifts. But the most fun of all is assigning various duties to friends like Diva, Couch Potato, Super Nice Zookeeper and of course, cleaning Maria’s pool. It’s fun to play, period, but especially fun to play with your friends. When you visit your friends’ towns you can collect coins that help both of you.

We just barely got the beta version out for limited testing and the press found it and seems to like it, too:

“Known for creating high-quality games, Digital Chocolate has done it again with NanoTowns. The game takes an almost Sims-like feel with a saturated, cartoon-like style, and well-designed game play.” – Inside Social Games

Play Now: http://apps.facebook.com/nanotowns/

We’re a few weeks away from the joint Facebook debut of NanoStar Castles and NanoStar Siege, the first two games in our NanoVerse™ game system. Both games feature simple and short gameplay sessions placed in a medieval fantasy theme, although future games will use a wide variety of settings. You can play these games for free and each of them features the use of 10 different NanoStar characters absolutely free. And you can play against other real players that are building a collection of NanoStar characters, and see characters in action even if you don’t own them yet. That gives every player a taste of the first edition of 151 unique, collectible NanoStar characters.

Many Facebook games are called social games because they spam your friends with requests like, “add me to your mob”. But in those games, you’re not really being social or actually playing with your friends. You’re just being forced to use your friends to help the viral spread of the game, which helps you advance in the game. So social games haven’t been that social, until now … With the NanoStar games, we believe that anyone who takes a close look will prefer these games, because they are fun to play with friends, and designed so that all of your friends will feel capable of playing them.

While NanoStar Castles plays like a compelling yet simple trading card game, NanoStar Siege is in the Tower Defense genre that is all the rage in casual gaming today. But we’ve taken the gameplay well beyond the norm, both in the genre and for Facebook. It has a “next gen” feeling in terms of the interactive graphics and animations. NanoStar Siege is a great game for live, two-player play with a friend, and instead of just Defense, we have added Offense. And of course, NanoStar characters will become power-ups in the game, which we call Heroes.

In NanoStar Siege you wage war with other kingdoms by attacking and defending for might and glory. As you advance in honor and fame, your title and rank will change allowing you to show off your progress to your Facebook friends. If you purchased any powerful NanoStar characters for the NanoStar Castles game, they are immediately available to serve the new and unique purposes in the NanoStar Siege game. For example, many of you know our character, Crazy Penguin from games like Crazy Penguin Catapult or our brand-new iPhone game, Crazy Penguin Party. This character may be cute but he’s all business and prepared to sacrifice himself to the penguin cause. In NanoStar Castles you should not be surprised to hear that he is a Noble that turns into an actual catapult that launches him into the opposing castle to knock out opposing Nobles.

When Crazy Penguin comes over to NanoStar Siege, the penguin turns into a unit called Bandits that unleashes a group of Skirmishers at any spot on the battlefield that you choose, as if they parachuted in … no, I guess they probably got there by catapult! There are equally fun things to do with each NanoStar character in every game, and they really make these games distinct while offering more variety and value. And then every NanoStar character that you have collected for NanoStar Castles and NanoStar Siege will soon have another unique game where you can have new kinds of fun.

NanoStar Siege in the beginning gives you some basic military units like archers and swordsmen that you can arrange on what is basically the medieval equivalent of a football field. You can earn gold from victories that allow you to buy more reinforcements. The NanoStar characters turn into Heroes that create much more gameplay variety and powerful fun: things like poisoned arrows, damage to enemy morale, traps, armor-piercing arrows, assassins, cavalry, cannon, or a hail of bonus arrows. Lots of features for higher value but still presented in a simple gameplay experience where you are just pushing buttons. You can jump right in and play without knowing very much, but with these games, the more you play the more subtle and layered your strategies will become. There is infinite gameplay depth compared to virtually all other offerings on Facebook. I can’t wait for these games to go live!!

On the Left: Crazy Penguin is a NanoStar character and can be acquired via NanoStar packs.

On the Right: In the NanoStar Castles game, your Crazy Penguin character turns into a Catapult that you can use in-game to improve your chances of winning.

Lately I have been feeling blessed by my management team’s commitment to teamwork. We’ve been doing a great job of avoiding the stagnation you can read about in Patrick Lencioni’s book, The Five Dysfunctions of a Team. I’m talking about absence of trust, fear of conflict, lack of commitment, avoidance of accountability and inattention to results. In the current economy and amid all the disruption and change in the game industry, many companies are suffering from these problems and are struggling to adapt. At Digital Chocolate I have been very pleased with our agility in rapidly achieving 50 million downloads on the iPhone and in our current speedy transition into Facebook social games. We are also pushing hard to become a more tightly integrated global operation.

In recognition of our progress, I am pleased to announce three key promotions. Ilkka Paananen, the original co-founder and CEO of Sumea in Finland, is now President of Digital Chocolate. Ilkka is driving our social game business and that includes a new and growing team in San Mateo that is headed by Saurin Shah, who has been promoted to Vice President. To address our growth opportunities we’ve expanded our Marketing team and have promoted Marc Metis to Chief Marketing Officer. Congratulations, gentlemen, and start your engines!

Ilkka Paananen, President of Digital Chocolate

Marc Metis, Chief Marketing Officer of Digital Chocolate

Saurin Shah, Vice President of Digital Chocolate

We’re now reading about how Google is competing with Apple, Apple is competing with Amazon, and Amazon needs to acquire Netflix… while it was not long ago that these all seemed like pretty different businesses.  Google was a search engine, Apple made computers, Amazon sold books and Netflix rented films.  But many companies, including these, figure out after awhile that they should try to control related distribution channels and content platforms.  Google and Apple are now leading mobile platforms for ad networks and will fight for leadership.  Apple initially got into content channels to sell devices like the original iPod, but Apple now sees broader strategic control over content as a big opportunity.  Thus, Apple increasingly views Adobe (Flash), Google, Amazon and other companies as competitive threats in both platform and content businesses.  And Hollywood companies are wary about losing control of TV and film content the way they lost control of music.  Hence, you see the iPad launch causing pundits to pronounce the Kindle a dead duck but Flash and Hollywood are conspicuous by their absence.  Meanwhile, Amazon wants to go beyond the PC platform and beyond book content, hence the Kindle and interest in online video.  That’s what keeps fueling the Netflix rumors as Netflix continues to both feast on Blockbuster’s decline while also ramping up online video streaming deals with the likes of Nintendo.  That’s ironic, because in some ways these companies are all aspiring to be another Nintendo, a company that achieved complete dominance of its own revolutionary value chain from platform to channels to content.

We’re getting close to the public launch of our NanoStars™ characters, a new gaming platform that is something like Pokémon for adults.  The NanoStar characters are virtual items but unlike purely functional swords or guns, they have a lot of personality and emotional qualities, and they feel grown-up.  And while the rest of the world’s virtual items have only one functional use, the NanoStar characters turn into different things that have different functions in different games.  This is a big opportunity and we are trying hard to make sure we don’t screw it up.

Great games “go the distance” to do whatever it takes to be great.  But you have to balance features against time and money.  How much is enough?  I’ve always believed that God is in the details and great games have a strong central concept, but you also have to put the “cherries-on-top” by tending carefully to a lot of details.  To truly “go the distance” you need a lot of carefully polished details.

Some obvious details fall out naturally as a result of making a game authentic to its core concept, which gives the game integrity.  That’s not what I mean.  I’m talking about going further than the basic requirements of authenticity and integrity, beyond what is necessary or expected.  Doing extra things just to delight, surprise, or blow people away, evoking special notice from both players and critics about something unnecessary that made it really special. Walt Disney called this, “plussing”.

At Disneyland, plussing began with his mantra that there would be no chipped paint, and only escalated from that point.  He needed some kind of rollercoaster but it was plussing to build a Matterhorn.  And when you ride the Fairyland boats and see Pinocchio’s village with its tiny Alps, they made a point of arranging the ride so that the larger Matterhorn looms in the background of that scene.  And how about the animal topiary outside the “It’s A Small World” ride. Are they even organized by continent of origin?  And how all the speakers are hidden inside fake tree limbs or rocks?  It adds to authenticity but it is so far above and beyond the call of duty that I’d include it as plussing.  Minnie’s house has furnishings like books but it takes the parents to appreciate a book like “Five Cheesy Pieces,” or the corny jokes on the tombstones outside the Haunted Mansion.  And the dinosaurs:  of course they had to have a brachiosaur and give it a chewing mouth, but they make it chew somewhat more side to side, like a kid chewing bubble gum.  And the “cud” is enormous, just to make sure you don’t miss it, so it is swaying back and forth.  And a smaller brachiosaur is hovering just below it, hoping to snag some if it droops.  All plussing.  Then the triceratops has to be having babies, of course.  And the babies have to be coming out of their shells right now, how cute.  But even that is not enough:  we need to have a piece of shell on top of the head of one of them being worn like a hat.

In pioneering and building the EA Sports game franchises, I was a fiend for details in the name of authenticity.  But there was still plussing.  I was thinking in terms of authenticity when I had John Madden appear as a TV announcer, coach advisor and AI computer component in his own game.  While building our first team NBA game, Michael Kosaka and Don Traeger did some plussing when they created EASN, the “Electronic Arts Sports Network”.  They went so far overboard on mimicking a TV sports broadcast that elements of this plussing became a major component in the brand positioning.

At Digital Chocolate, the Tower Toons in Tower Bloxx are an example of plussing, and so are the exotic power-ups in Brick Breaker Revolution:  we took a simple classic mechanic like breaking bricks with a paddle and a ball and just blew people away with the creativity in the power-ups.  In our new game, MMA Pro Fighter, we keep expanding the repertoire of trash talk announcements you can make to your friends.

And we’re doing plussing with NanoStar characters in several ways.  Our debut game, NanoStar Castles™, began as a fairly simple and conventional card game with a traditional deck of 52 cards.  We then added the NanoStar characters as power-ups, or what trading card game fans would call modifiers.  Unlike the hardcore hobbyist trading card games, it’s an excellent game that anyone can play.  And a card game with a lot of personality beyond just the numbers that make up a game like solitaire or poker.  It’s a trading card game for the rest of us.  And we could have stopped there, but we went plussing.  The NanoStar character art is exceptional.  There are hidden jokes in every character and text name.  And then we took the whole thing and themed it in a medieval setting for the card game.  Every card deck has royalty – the jacks, queens and kings.  Building on top of that theme, we imagined competing kingdoms and their castles, and that is how we present it visually.  Every NanoStar character has wonderful, medieval-looking art for what it does in the NanoStar Castles game, along with more humor.  All in the name of plussing.

It is a powerful idea to have virtual items that are characters and can transform into different things in different games.  We’re doing a lot of plussing on top of that, including the fact that we have several games in development that will use the NanoStar characters.  Our second game, NanoStar Siege, will bring a lot of plussing to the tower defense genre.  We hope our NanoStar characters will go the distance.

All the hoopla about the effects-laden film, Avatar, urges me to comment on even better films like Fantastic Mr. Fox and The Princess and the Frog.  As a sidebar, I took my kids to the Cartoon Art Museum to see some of the puppets from Fantastic Mr. Fox and was delighted at the how creatively inspiring it was to take a stroll in that museum, a veritable encyclopedia of characters and ideas.  But getting back to Avatar, indeed Cameron’s opus has amazing special effects, but I think I have seen this story dozens of times (Pocahontas Dances with Wolves and The New World come to mind).  And the film is full of clichés and stereotypes bordering on racism.  Cameron is a great film-maker so I did not understand his insecure need to use such blunt instruments, as if he did not think his audience could follow the story unless he repeatedly hit us over the head, or that we might not like it unless he used a known formula.  But dude, we’ve already seen this story.  And if you are Da Man, prove it and bring us an original story, eh?  On the one hand, it’s great to see Golden Globe honors for the film because digital production is so under-represented by the Oscars every year.  But the Globes and the Oscars still do a great disservice to animated films, as if they’re not real films or are not in the “major leagues” of film-making because they don’t shoot live actors being directed in front of a live camera.  As a member of the digital fraternity this bothers me, because Hollywood was not always this way.  Back in 1937, Disney’s Snow White won a special Oscar with one full-sized Oscar joined by 7 “dwarf” Oscars.  That film ranks # 37 in the AFI’s list of the greatest films of the last 100 years but still wasn’t nominated for Best Picture, a category never won by an animated film.  There are even better animated films made today and yet only one animated film through 2009 has ever been so much as nominated for a Best Picture Oscar (Beauty and the Beast, 1991).

In recent years the Pixar films, Ratatouille and Wall-E, were no-brainers to be nominated for Best Picture and would even have been deserving winners.  What I find especially notable about the quality of Fantastic Mr. Fox and The Princess and the Frog is that they rely on the older methods of stop-motion and cel animation.  What they demonstrate is that first and foremost, as with many games, you need a great story and a great script. If you have those things you can make a great film with or without a camera and with or without digital effects.  Fantastic Mr. Fox (ironically, from 20^th Century Fox) is emotionally deep, full of laughs and pathos and great voices; and you almost feel like it is George Clooney on the screen.  The Princess and the Frog is extremely inventive, brilliantly executed and my choice for Best Film of 2009.  What a great comeback to prior glory for the Walt Disney Animation Studios.  These are not children’s movies and they deserve the same glory as Avatar.

The media is now buzzing about Apple and Amazon and the new class of tablets and netbooks like the Kindle.  A new market for more than 2 billion customers could emerge from this new class of devices between the PC and the mobile phone.  Last month, Intel announced that they’d already sold over 40 million Atom processors, a chipset aimed squarely at the market for tablets and netbooks.  And ABI Research believes that Atom processor shipments alone will be in the hundreds of millions by next year.

Apple makes great products and once again they are likely to spark the public’s imagination and establish an archetype for other suppliers to follow.   It reminds me of the early days of business computing when big companies would not adopt a new product class until IBM entered the category.  IBM had that clout because of their reputation for reliable service, and today Apple has it because of product design and user experience.  As IBM did in the past, Apple creates new market demand and a model for competitors to follow. This allows an industry of suppliers to emerge with clones at lower prices and wider market reach.  Google’s Android is such a clone chasing the iPhone. We are not far removed from $600 iPhones and you can already find an Android for $99.  Meanwhile, netbooks today are already approaching the $200 threshold and it won’t take long before you will see a tablet for $99.

The world’s installed base of desktop PCs is around 1 billion today and most of these are business users that can afford bigger and more costly computers that are desk-bound.  By contrast, the mobile phone market in just a few years has become the largest installed base of computers and is pushing the 4 billion user mark.  Market size is driven by price and convenience and these factors will also apply to tablets and netbooks, whose long-term market potential probably lies in the middle.  Anyone who has watched a movie or browsed a website on an iPhone and that has room for a tablet in their backpack or purse can get excited about a tablet.

Many computer users, especially consumers and students, really only need a browser, decent screen size and method for text entry.  Purists would argue that this requires a real keyboard, but billions of mobile texters prove otherwise.  Smaller devices that are less expensive and convenient to haul around can reach far larger audiences.  This also applies to playing games, where far larger audiences today are playing on mobile phones and on social networks because of the convenience and simplicity.  The world may suffer permanent damage in the quality of written grammar and spelling but device convenience is going to rule the day.  Tablets will also be especially nice for browsing and video, which will be bigger and better than on smaller mobile screens and far more portable than PCs.

Good mobile and Facebook games should have no trouble standing out on tablets and netbooks, which will be a big win for Facebook gamers simply by letting them camp on Facebook while not at their desks.  Mobile games will be able to take advantage of greater computing power, better sound, and bigger and better graphics.  These devices will also improve social games by making them more portable; other improvements will come from enabling portable communications through text and voice chat as well as video conferencing.  The Kindle is initially focused on ebooks but over time Amazon could follow in Apple’s footsteps.  Originally, the iPod was only a music player and device business for Apple but look at it now.  Amazon, like Apple, is a great brand with a hundred million online customers, give or take.  There will be billions of new customers using these new media devices and both companies are poised to become leading content channels.

We’ve had a great public reception to our new mixed martial arts game on Facebook, MMA Pro Fighter, which is getting good reviews and rapidly growing towards 100,000 players in just a few weeks of time.

I’ll confess to being addicted to MMA Pro Fighter and it is out of control, well beyond the purview of purely professional reasons to play the game. This has not happened to me since 2006. Yes, I even filled out a few offers to get more Pro Points so I could load up my fighter with more boxing techniques, unique shorts and a nifty tattoo. I had no idea that I could get roped into caring about “decorative personalization”. I’m now wondering if I have a secret unconscious desire to have a real tattoo… no, highly unlikely… Anyway I boosted up my stamina too fast initially and didn’t have enough cardio and I was getting knocked around like a ragdoll, but I could compensate by working out like a fiend and improving through training (and no PEDs, please!). I got the hang of how to win at the fights and am now in a good cycle of sparring, fighting, training, and acquiring new techniques. Today I got revenge on my rival kilkwik and spanked him a few times. And I think I am almost good enough to take on The Facebreaker. But I am still humbled, as I have yet to catch up to a female colleague whose fighter is named Poox and whose Facebook profile photo is of a kitten. She’s too tough for me to take on right now and I gotta get better first. Geez, I am humbled by a kitty kat. And I also got cocky today and took on a guy that I thought I could beat even though I was not at full strength. And I lost by a whisker… pwned!

A tip if you are playing: focus on mastering your special fighting style, which may be boxing for me but Judo for you. Then look for opponents that are also into Judo but not quite as good (maybe a level below you). Because your defenses against other specialties will be lousy, you don’t want to fight guys with specialties entirely different from yours. Then, take a look at what moves damage you and go learn how to defend against those. I have mastered enough attack moves that all I care about now is making more money so I can learn how to “Evade Head Clinch To Takedown” because that MMA style is my weakest link. Also, *always* keep your fighter stocked with 2 protein bars or drinks. If you are getting pounded but can make it to Round 2, you’ll be able to take the drink and recover enough to often win in the next round.

Go to the game: http://apps.facebook.com/mmaprofighter