We hate the traditional mobile games industry; it’s marked ny dull inertia, controlled by greedy operators, and fueled by submissive game developers, who end up with only 10-15% of the earnings.

For a long time the industry has lacked innovation, and the market has been slow to take off - although the presence of mobile phones is ubiquitous, as Gartner puts it.  Everybody seems to have leaned back in their Chesterfields with their legs on the table, waiting for somebody to come up with the ‘killer app’ that sparks the tremedous market potential. In-Stat says the mobile market games will hit $6.8 in 2013 and 29.5% of mobile users have played games on their handsets. Juniper research is exhibiting the same enthusiasm:

The increasing popularity of casual gaming, combined with a steadily increasing variety of gaming-friendly handsets offering high quality 3D graphics aimed at core gamers, will help to push end-user generated revenues from mobile games to nearly $10bn by 2009

Meanwhile many of the large mobile games developers are struggling to survive, according to our sources. The most succesful mobile game developer in Denmark only makes a profit of less than €100.000 a year and a profit margin of less than 10%, making it impossible to scale their business to compete with the incumbents, like Gameloft or Digital Chocolate. The latter companies use their scale and market capabilities to make exclusive deals with the operators, excluding all indie-developers from the operator’s decks. And somehow these small game developers chicken out and just accept their position in the food chain and back off for the Alpha Males. A depressing and pathetic sight.

Last week, Techcrunch reported that Gamejump hit 140 million downloads. We LOVE to hear these stories, where start-ups try to innovate the current business model and give indie-developers a chance to get to market. But unfortunately, Greystripe (who owns gameJump) is facing some major hurdles with their ad-supported business model. As ‘Tom’ puts it in his acute comment:

3 major problems for iphone distribution for them:

1) They don’t control the distribution, only apple does and so they need games in the top 100 to get any amount of significant downloads and play.

2) Assuming they get a couple of games in the top 100, they don’t have enough Ad inventory to fill the ads and hence the developers are much better off with Admob or some other ad network.

3) To fill their ad network, they will run inhouse ads, hence paying developers from the VC cash they have raised and at the end of the day, bringing them that much closer to shutting down.

Come on people, Google, Yahoo, MSN, facebook are having problems selling CPM ads these days…..do you really think that Greystripe can hire a sales force to convince advertisers to advertise on the iphone when CPM ads on facebook and myspace are at $0.50CPM. Even if they get their 5 advertisers to sign on, do you think it will justify their 20+ million valuation at last close in 2007.

Consequently, ‘Tom’ believes that Sequioa- backed Greystripe won’t make it till 2010. There are other business models on the rise, like Cellufun’s, where you pay for connectivity in their multiplayer games. At Muzui, we’re trying a business model out right now that looks very promising. We’ll keep you updated.