The other day, I was speaking to Siren about the potential of Apple in the videogame sector on AIM. It was pretty interesting, and we both think it is likely that Apple will enter in late 2009 or 2010. Microsoft rumblings for entering the market began in 1999/2000, culminating with a report in the NYTimes from Christmas 2000 that Microsoft offered to buy Sega, and then Nintendo. By E3 2001 it was clear Microsoft was entering, and Xbox launched in 2001.

The questions then are how Apple would enter, and what would the market look like in 2009/2010. I'm going to list talking points about how the market will be set up starting with the all but certain at the top, and less certain scenarios toward the bottom.

Likely Market Setup in 2010:

Portables:

The Nintendo DS, having launched in 2004, will be declining rapidly in sales all over the world. However, the platform will have topped 115-125 million units by then, with over 30 million DSs sold in Japan alone, perhaps as many as 40 million (which would be up to about 1/3 people in Japan...comparable in saturation to 100 million in USA sales). PSP, the first worthy competitor to Nintendo in the handheld space will be at about 50-55 million in 2010. The products will finish add less than 15% to their end 2010 totals by the time they stop selling - suggesting the portable market will include about 180 million customers around the time Apple enters the market. Despite the competition between Sony and Nintendo, the costs for making a portable remain relatively low compared to making a console, and Apple has had success with portable devices in other arenas.

If Apple created an A.P.E. Division (Apple Portable Entertainment) to launch an "I-Game" it might be an easier point of entry to videogames than a console. With loads of money, but no first party talent to speak of, the Apple "I-Game" would need to be cheap to attract huge third party support, until Apple developed internal talent to get off the ground. For all of Jobb's success, when he worked for Atari, Nintendo's business practices obliterated his, and expecting to be immediately successful in gaming would be foolish for Apple. Short term, Apple would probably pose more of a threat to devices like PSP and Zune, which are often seen as media devices first (especially Zune). Additionally, the 'touch' innovations that Apple champions are already familiar to portable gaming, not to mention heavily ingrained to an entire generation of new gamers because of the DS. Still, if PSP2, DS2, and I-Game were all to offer the power of touch, it is plausible that Apple could have a big impact on the sector if it courted 3rd parties and handled pricing and innovation propperly. The possibility of Microsoft entering the portable market remains too if one of these devices was to carry a Linux-based architecture in every unit. Most likely though, Microsoft feels portable gaming is not a threat to Windows.

With Nintendo, Apple, and Sony releasing new Portables in Late 2009 or 2010, I can see three realistic scenarios:

Nintendo best case:

DS2 - 135 million (45 million Japan/45 million NA/45 million Others)

I-Game - 30 million (4 million Japan/21 million NA/5 million Others)

PSP2 - 25 million (7 million Japan/10 million NA/8 million Others)

Sony best case:

DS2 - 75 million (25 million Japan/25 million NA/25 million Others)

PSP2 - 65 million (20 million Japan/20 million NA/ 25 million Others)

I-Game - 50 million (11 million Japan/31 million NA/6 million Others)

Apple best case:

DS2 - 100 million (33 million Japan/34 million NA/33 million Others)

I-Game - 60 million (15 million Japan/35 million NA/ 10 million Others)

PSP2 - 30 million (9 million Japan/11 million NA/ 10 million Others)

At best for either Sony or Nintendo, one rival would likely see a dramatic decline in portable sales.

If we assume that Nintendo is the winner of the current console war by units sold, and that Microsoft is the only company not involved in the portable battle, then Apple will in effect be weakening Sony's position in both markets, which will allow Microsoft to focus on beating Nintendo. Conversely, if Sony is the winner of the current console war by units sold (unlikely), and Microsoft remains uninvolved in the portable battle, then you would likely see Nintendo put more effort into portables than consoles, and Sony's hard earned fight in the portable sector would get marginalized. The point though, is that if Apple enters the portable space, but not the console arena immediately, one of Microsoft's rivals will get weaker, which will help the Redmond giant.

With that said, I expect console sales for this generation to be:

Wii - 45 million (essentially guarenteed now) to 200 million (still a long shot). My hunch is Wii will be between 75 million and 145 million lifetime.

PS3 - 30 million (its tracking ahead of Xbox 1 now) to 75 million (still a huge drop from PS2 and a long shot). My hunch is PS3 will be between 40 million and 60 million units lifetime, with "Others" serving as the disproportionately strong region (45% I'd wager) ala earlier examples of strong North America shipments for N64 (20.6/33 million), Xbox (16.5/24.7 million), Xbox 360 (65% of sales to date).

Xbox 360 - 30 million (its tracking ahead of Xbox 1) to 60 million (in a best case scenario it would need to hit ~39 million shipped in North America). My hunch is Xbox 360 will sell between 35 million and 48 million worldwide.

In other words, the market could hit 260 million, or shrink to 105 million in a worst case scenario. Add the two extremes together, divide by 2, and multiply by 1.25 and you arrive at what I will think will happen - ~225 million, with Wii taking 128 million, PS3 taking 52 million, and 360 taking 45 million.

In a scenario where PS3 ends up at 52 million after PS2 ends up with ~135 million shipped and Microsoft's influence is growing with consoles, Apple poses the most immediate threat to Sony.

With all of that said, I think Apple's industry best case scenario is actually this:

DS slows down rapidly from this point, and 'only' hits 100 million.

PSP becomes branded as multimedia player first, game device second, and sales stop at 45-50 million.

PS3 beats Xbox 360 and Wii in the end - but it is close - something like 72/68/50 (PS3/Wii/360)

To beat Microsoft and Nintendo, Sony loses tons of cash between 2008 and 2010 on PS3, and loses focus with PSP.

Nintendo's attention is divided between slowing DS sales and Wii sales.

Microsoft's positioning for the next gen scares Nintendo and Sony into focusing on Microsoft instead of Apple.

All in all, Apple would do best in a muddled market, but things do not appear to be trending that way - if anything this generation is essentially the big three trying to sort through the demographic chaos, and the perception door that was forced open by Wii this generation is close to slamming shut again.

With all of that said, here is how I see Apple coming into gaming:

I Game launches in November 2010 worldwide, competing against the PSP2 and DS2. DS2 is cheapest - at $149, PSP2 is $249, and IGame is $199. DS2 has immediate differentiation with some new type of format. PSP2 is a fulfillment of PSP's potential media and gaming capacities, but is seen as more of the same, and lost in the hype of the other two devices. That said, the three devices split regions initially, DS2 launches strongest in Japan, but second in the west. PSP2 launches best in Europe/Others, I Game launches strongest in the USA. In 2011, DS2 gets key releases that utilize its tech well and after a rough start it becomes to overcome the competition worldwide. PSP2 gets mostly PS3/360 ports at first, as most top developers are focused on 2nd year titles for Wii2/PS4/X720. Apple uses indie developers to court PC gamers and others to portables, to try to establish an Xbox 1 like brand. These trends continue, with Apple able to climb ahead of PSP2 in the end despite coming in a distant 3rd in Japan (no big RPGs). Final sales are between the Apple and Nintendo best case scenario above, something like 115-45-30 (DS2-IGame-PSP2).

Toward the middle of the portable race, Apple announces plans to introduce a console. In the current generation, Nintendo ends up on top, with Sony and Microsoft close to each other. Following that, Nintendo introduces an even more immersive play method, but Sony and Microsoft launch cheaper (than this gen) consoles at the same time, with differentiated immersions. Because of this, Microsoft is able to finally do somewhat well in Japan, which for the first time truly makes three viable consoles worldwide at the same time. Worldwide, the market expands to 300 million as China becomes heavily involved. Nintendo attracts the most developer support in China because Wii2 is cheapest and has strong antipiracy measures, but in other markets, Wii2 sells only about 80% as well as Wii. PS4 declines further from PS3 marketshare in the current markets but sells better overall because of China, and Xbox 720 does better in China, and hurts Sony alot in Japan. The split ends up something like 170 million (25/35/45/65 J/NA/Oth - China/China) for Wii2, 70 million Xbox 360 (5/30/15/20), and 60 million PS3 (6/20/24/10).

As Apple launches its console, it intends to top the success of its IGame. However, with the level of competition varying worldwide, Apple focuses on establishing a solid brand worldwide. With the market poised to grow to 350 million in the Wii3/Xbox 1020/I-Novate/PS5, everyone attempts to stop Nintendo. As a result, the market fragments - with different companies supporting different types of interaction - and likely one of the current big three knocked out...

This is all speculative though.

What do you all think?

with Touchscreen Apple is now the master of, I think it will steal more from DS side than PSP side. It'd be an interesting race nevertheless.

Although I don't see them doing it. Game console needs third-party support and we all know Apple isn't the most third-party friendly company

Nice read, but I think I-Game would do better then you interprited.

I don't think Apple would join. Maybe the handheld market utilizing the iPod, but not the home market. They are focusing on bridging the Mac with the TV through their iTV where as MS is using the 360 for this purpose.

Personally, I think Max iTv is the better route. In fact, as soon as the HDTv version comes out I will probably get it.

I think you are awesome for wearing that shirt in public. And it all sounds like a very well thought out probability to me.

very nice read dude,but if apple enters i doubt it will be the console market

Interesting read, I think the Apple handheld would be the most expensive of them all though.

If apple joins the console industry this site is going to have to put procedures in place to deal with the hordes of the worlds most ravenous fanboys.

My bet is on it being a handheld 

Nice REad
but what kinds of games will be on it?
What franchises does it have to attract customers
i think apple would be focuced on making it the smallest hand held than the games
like it does w. its comps..


btw the macbook ari is hot!!