Apple iPhone 4 Upgrade Shows New Focus on Social Games, Developers, and Monetization

Apple plans to launch a “social gaming network” this summer, along with a number of other major upgrades coming in its 4.0 version of the iPhone operating system. It’s also launching an ad network that is designed for apps and uses features like location to target ads.

The company downplayed these business moves — focusing much of the announcement on product upgrades like multi-tasking that many consumers will be thinking about first. But it is more than ever trying to be a software platform company that relies on the web, not just a hardware and operating system maker. Here’s a closer look.

Game-Related Features Announced Today

Gaming has not been especially social on the iPhone, so far. Today at the launch press event, the company said new “Game Center” features will include some of the standard functionality seen in game console systems, games on social networks and in third-party mobile social platforms including Aurora Feint’s Open Feint, Scoreloop and Ngmoco’s Plus+.

“We wanted to make this even better — we’ve added a social gaming network.” said Scott Forstall, senior vice president of iPhone Software, at the launch event today in Cupertino, Calif. “We do automatic matchmaking, we’ll find others with a similar ability and match them against you. You can see how you’re progressing in a game with achievements.”

It’s not clear how these specific features will work, but the signs indicate that they will. Aurora Feint and Ngmoco have been reporting social game-style growth on their own iPhone apps, and in some third parties who use their mobile social platforms. They’re offering games for free and in many cases monetizing using virtual goods. These games monetize using their iTunes to; in Ngmoco’s hit new game, medieval city builder We Rule, you pay for virtual currency that you use to buy virtual goods.

Having nailed the virtual currency platform revenue model already with iTunes, Apple is also getting in to ads today — another way for developers to monetize. Apple founder Steve Jobs demoed the company’s new iAds system, which basically provides interactive ad formats that developers can build into their games and other apps, that advertisers can run ads in. An important point is that these ads can use all the regular app features, like the accelerometer or location — so ads can be targeted for local businesses, for example. Developers will get a 60% cut. Apple will host the ad content. Jobs’s explanation for this move: “What some [app developers] are starting to do is put mobile ads in their apps… and most of this advertising sucks. We want to help developers make money with ads so they can keep their free apps free.”

Monetizing Mobile Apps

When you add up what Apple announced today, you get the sense that the company wants a piece of the social gaming action that Facebook has been enjoying. The social features will help smaller developers grow more than they have been, potentially, because friends can tell each other and users can find competitive or cooperative players at their own skill level. That in turn means more people to sell virtual goods or show advertising to.

Facebook, and to some degree other social networks, has benefited from providing an ecosystem that allows developers to find users for free, then monetize them primarily through virtual goods. Facebook has made money from this platform because its advertising system allows developers to buy advertising from it that allows them to reach new game players. It is also working on its own virtual currency, Credits, to run inside third party games and get a cut of virtual goods revenue.

Note: To get an in-depth look at the size of the US virtual goods market, and the social gaming market specifically, check out our in-depth market research reports: Inside Virtual Goods: The US Virtual Goods Market 2009 – 2010 and Inside Virtual Goods: The Future of Social Gaming 2010.

The first comparison many are making here is to Xbox Live or other console-driven gaming systems. Those include the same sorts of basic features like leaderboards and achievements that Apple is planning to introduce. And so far, games and game distribution on the iPhone has looked quite similar to these systems. But Apple showed a graph of the number of gaming apps (50,000) versus dedicated competing devices like Nintendo’s DS (4,321) and Sony’s PSP (2,477), with a very clear point: Its platform is significant for lots of third parties, and the others aren’t. Console systems tend to be dominated by a few big players who can afford to build the most complex, highest quality games and market them to typically serious gamers who buy the devices.

So far, Apple’s system has had many of the characteristics of a console system, as distribution has been through Apple’s App Store — just a few leaderboards, and favorited items from iTunes employees. Apps have grown because they’re high-quality, cheap, easily accessible, and people do hear about them through word of mouth. But Game Center could make the iPhone operating system a better place for social games that grow by friends and like-minded people to share games. That in turn will help the free-to-play model work even better, and make its developer ecosystem even more attractive. As Jobs said today: “Well, we’ve got a lot of free apps — we like that, users like that, but these developers have to find a way to make some money, and we’d like to help them.”

Apple Has Bigger Plans

Parsing Jobs’ comments, you can find all sorts of clues about the company’s developer and web focus.

When talking about how mobile apps work, he seemed to be targeting Google: “On a mobile device, search is not where it’s at, not like on the desktop. [Users are] spending all their time on these apps — they’re using apps to get to data on the internet, not generalized search.”

When answering an audience question about make apps easier to discover on the App Store, he seemed to hint at significant upgrades, that could include features for games beyond the Game Center: “A few things: number one, the App Store is not part of OS 4 or any release, it’s a service and it’s programmed on the server side, and we can enhance it without waiting for a major release. … We’re constantly interested in improving that, and do so fairly frequently. In terms of discoverability, we’ve added things like Genius recommendations, but I also see an infrastructure evolve to help users find apps.

When asked if iAds shows Apple wants to be an ad agency, Jobs said both no and yes: “We do not have plans to be a worldwide ad agency. We don’t know a lot about advertising, but we’re learning. We tried to buy AdMob, but Google snatched them up because they didn’t want us to have them, so we bought another smaller company, Quattro. But we’re babes in the woods.”

Apple has a long way to go before it’s a full-blown web service like Google or Facebook, but its deeper and deeper moves into areas like developer platforms and advertising suggest it could be planning more offenses against web companies in the future. Developers can get early access to the new version of the OS, here.

Images and quotes from the presentation via Gdgt and MobileCrunch.