A new wave of video games has begun and with a bang. King Digital Entertainment PLC (KING) started the revolution of mobile gaming with the smash hit Candy Crush. This game features candies that you match up, score points and go to the next level. It was highly addictive and at its peak it had 6.7 million active users and earned revenue of $633,000 a day. King’s stock went public and soon after was purchased by Activision Blizzard (ATVI) for $5.9 billion. The deal closed in November 2015.
The mobile gaming market is the fastest growing of the gaming genres and just got another major push with augmented reality (AR).
Recently you may have seen people wandering the streets, parks and hallways with their phones in their hands. These are Pokémon trainers looking for the animated creatures in the real world. I was intrigued by the novelty and excitement and downloaded the free app, Pokémon Go.
Pokémon were created in 1990. Pokémon is a contraction of the Japanese words for pocket and monster and a video game featuring the creatures came out on the old handheld gaming system Game Boy. The basic premise of the original is now the premise of the mobile game: “Gotta catch’em all.” It’s that simple. There are 151 Pokémon to capture but the app version features new technology – augmented reality.
What does this mean exactly? You create an avatar (a representation of yourself in a game) that walks around in your existing space using your phone’s GPS and Google Maps. The Pokémon creatures show up almost everywhere in the United States. To find them, you walk around using your phone to look for them in the real world: in your neighborhood, on campus, in businesses (I found four in my office!), etc. Instead of sitting on the couch holding a controller, players wander the streets with their smartphones looking for the animated creatures.
The Pokémon Go phenomenon has caught fire. In the span of a week, it was downloaded 15 million times in the U.S. alone. I became interested as I saw Nintendo (NTDOY) shares going up more than 50 percent in a week. Nintendo collects 10% of the app’s revenue, Pokémon Co. (in which Nintendo is a 1/3 owner), collects 30 percent of sales, and Niantic Inc., which was a spin-off from Google last year, seems to be poised to gain the rest. Niantic Inc. is a privately held company in which both Alphabet (GOOG) and Nintendo own a stake.
The app is free as most mobile games are, but in-app purchases of lures and poke balls (the ball used to capture the Pokémon) can be purchased with real money. In fact, estimates put the revenue from the in-app purchases at $1.6 million in daily revenue. In contrast to most mobile games where about 3 percent of players spend money, 20 percent of the Nintendo AR players are spending real money in the game. The success presents the opportunity for Nintendo to capitalize in the future on its other major franchise, Mario.
Shareholders in companies that are involved with the game creation aren’t the only ones benefiting from the craze. CNBC featured L’inizio Pizza Bar in New York, where manager Sean Benedetti spent $10 on lures to attract Pokémon to his restaurant. By doing so, he says he increased sales by 75 percent. People came in to take advantage of the lured Pokémon but they stayed to buy pizza and beers. The July 15 State College Spikes game offered 5 p.m. entry so that players could use the two PokeStops (places to collect eggs and Poke balls) and take advantage of “lure modules dropped throughout the night.”
There is the downside to Poké-mania. Reports of people trespassing in zoos to get at a Pokémon, accidentally falling off of cliffs while looking at their phones for Pokémon and finding a real dead body rather than a Pokémon are just a few. The humorous stories exist too, like a Twitter post that showed a picture of a cop with Rattata beside him and the caption, “When you get pulled over but you gotta catch em all.”
There are also some inappropriate places where people went hunting for Pokémon. These include the 9/11 Memorial, the Arlington National Cemetery and the Holocaust Museum in D.C. The Pokémon were there to be found, so Google maps may need to create restricted areas out of respect.
As with any fad, the novelty and excitement will fade but given the success of this AR game more are sure to come. As virtual reality and Augmented Reality gain traction and technology improves, soon taking a walking trip through England may be as simple as turning on your smartphone.
