What If? Who can make a great gaming smartphone? | Pixels & Profits #4 (Part 2 of 3)

yeah uh so this one's a bit out of left field so some delicate set up here um today's smartphone market is essentially a global duopoly with two ecosystems uh Apple which tightly controls design and manufacturing of their iPhone platform uh they own and maintain their own operating system in iOS they operate a global software distribution platform the App Store and over time they continue to bring more and more in-house including the the design and customization of silicon um then you have Google which owns and operates the Android OS Google differs a bit in the hardware side outside their flirtation with the Google branded pixel the vast majority of their phones are designed and manufactured by Third parties uh nearly all of them in the East the the payoff for them is operating their own software distribution platform much like the console business so the emergence and sheer dominance of these two ecosystems has you know put a lot of bodies in the Wake Palm Blackberry Microsoft Amazon

Facebook the list goes on and on so it's a extraordinarily hard Market to punch into for a variety of reasons one of the major ones is that you know you need to take share from two overlords with installed bases in the billions akin to the console war on steroids also the growth of these ecosystems were brought about in an era where telcos were competing with huge Hardware subsidies to lower in and hold on to valuable cellular customers another Vector is that while mobile distribution is massively profitable it's also extraordinarily expensive in r d and in Apple's case manufacturing you know that said one of the reasons both Apple and Google have been able to afford this is by the profits they gained from the gaming ecosystem and mobile free to play in particular uh so let's also briefly note that the time spent on smartphones is dominated by two main things gaming and then social which includes messaging and various platforms and uh for most consumers this is easily 70 plus percent

of the time spent on the phone so the question here is do you think a games publisher or a group of Publishers could skip the in-between and make a gaming for a smartphone today's episode is sponsored by data.ai to access estimates for rankings downloads Revenue usage or engagement for millions of apps on the App Store and Google Play sign up for data.ai there are gaming smartphones today like Asus Rog like has Rog branded smartphones from Asus if you're an Android and you like those but I think what you're talking about is a gaming publisher building their own effectively high-end mobile phone as a mobile handheld console right I mean I think that's where you want to take this so it's it's not just make a phone with high-end specs and sell it at a very low margin like Asus does it's um one of these behemoths coming in and saying we're going to make a high-end phone integrated with software

right and so like that the major Crux of this argument would be that this is not a valuable business to get into unless you own the distribution so you know any kind of smartphone manufacturer where they're making a phone that uh adheres to like the Android standards has been shown over time to be a loss making business um so I guess like the the the point I was trying to drive to is like what sort of publisher in the console or PC or mobile space has that kind of heft to be able to do something like that and the one that keeps coming to mind is uh Nintendo and you know if you look back at like Pokemon go for instance is a good example um half a billion lifetime installs 250 million of those came in the first quarter alone and then if you look at their their their shift into like more of a portable console uh they they've moved like 120 million plus or minus switches over the past you know six seven years so like Nintendo has been hesitant to shift to a mobile gaming

player because they want to be the distributor um and it's against their values to like monetize irresponsibility they want to shove out premium products that people can enjoy over a long period of time um they already have strong relationships with third-party developers which has expanded in the switch era and that uh you know again most use cases for um uh phones or gaming and messaging so you think about a high-end smartphone bomb of 450 to 550 apple is able to sell that for 2x that but they're you know a luxury brand and that's a completely different discussion maybe a little bit higher than that but um it would be a more expensive proposition for someone that attends to do this but you know what do you think about the the possibility of like Nintendo having a smartphone that would have access to like their full breadth of Ip that they would develop on for you know the next 10 to 20 years as a platform love it love it I think it's yeah it's

to me this is like an amazing uh like to your point Brian I think if anyone can do it I think Nintendo is definitely in the best positioned I think we've talked about the importance of first party exclusive content if there is a mobile phone and like the mobile phone and the iPhone basically killed the DS right and so there's a there's a there's also an existing Market of people who um love portable gameplay and a lot of the content that we used to play on DS is uh you know I mean it's kind of we gotta use a DS to play it so you know if if there was a phone and you know the Nintendo App Store included you know exclusive titles only on the Nintendo phones and the issue with Android and like a lot of the messaging you see from Apple is around privacy and safety like who do you trust as much as Apple like Nintendo's one of those handful of brands on one hand that families trust right

so I think that if you if you created like it would have to be like you know Screw Android and all the nonsense and things like that like like fully vertically integrated they build a custom software experience that's the part I'm not sure it's gonna be great but um I do think like if they can get that to be great and feel kind of like iOS and then have the exclusive games and you can imagine I can imagine any kid at their school with their Nintendo phone playing the playing the Pokemon game that you can only get on that phone then all the other kids are going to be like hey mommy hey Daddy get me the Nintendo phone right now if they if they remastered the original Pokemon Red and Blue and made that like that came with it like I don't I don't even see the price yeah just put the whole credit yes new games I just want the catalog of stuff to play through again yeah just take my money but I I just speculating like Amazon could provide fire OS like they

could do something with Amazon for the operating system for the software stack because Nintendo's OS software like on the consoles is largely crap yep right and you were saying that nicely I'll say it nicely um but if you go to Amazon you say hey we'll do a deal for a Nintendo phone a nintend phone I don't know come up with some fancy name we'll we'll leverage fire OS as the core operating system to build off of then you don't have to do all the work Amazon would sign up for that because they gain distribution and a reputable partner to really challenge Android and iOS yeah as someone who used to own a fire phone I would say maybe they should just start from scratch and sell the custom Nintendo thing but um yeah but I I think the idea the fire OS has gotten better they have the fire sticks and things like that like they're workable user interfaces like I not sure you can entirely say that the switch user interface yeah no I'm not I'm not saying that's good I'm just say maybe they get a you know a new Navy SEAL

Strike Team you know to do the mobile OS for them but yeah that's that's probably one of the one of the biggest hindrances I would think is just the development of I mean because even even IOS and Android did a lot of crap for things that they haven't implemented over time but you have to remember these these have been like pieces in motion for a dozen years now and they've all the features they've had to put into place even around like privacy and how much time you use the damn thing and you know all the you know ad sharing and figuring out how to get installs into the phones um they've gotten very convoluted over time and it's very hard to kind of uh reimagine those things standing still so they would have an opportunity to start from scratch but maybe it would just be a much lighter build at first and just support things like text messaging calls games maybe Netflix Spotify things like that not get too hardcore and needing the entire world and then and then you know obviously not having any IAP based games on it so I think it would be fun for developers to have a new a new place to distribute high quality games that

can be played portably Without uh monetizing as we have them for the past now I'm sure like epic would be one of the first to sign up on a new new uh new phone um you know one other idea that that I I thought of Which is less like gaming publisher and and you know you Brian you mentioned two applications gaming and social but I don't know if people remember but there was a time when Apple was thinking about banning Twitter off of iOS and then there was you know just random conversations on Twitter about Elon as part of Tesla doing uh a Tesla phone but you know we do know Elon loves games and Tesla has the world's greatest hardware and software engineers I think they could do it and whether it integrates more directly with Tesla or maybe Twitter but I think that would also be like if you know if if anyone were to come up with a new phone to get

me off of my iPhone and you know that's that's a pretty tall order it would probably be I would buy the Nintendo phone and I would probably buy a Tesla phone so for me Tesla would be the other other option Tesla certainly has the chops in manufacturing and software and Battery tech which are all critically important for a phone I think if we're sticking to the question I don't think there's a huge chance that Tesla could push a phone to Market leading with gaming because they don't have any content right now all their content they're putting in their cars is somebody else's and it's more of like a feature than a money maker and I think we're a good decade away still from playing games in a driverless car but that is certainly a future that I'm looking forward to you know that said they have this extraordinarily strong uh brand following that I think you had only put up there with companies like apple and Nintendo and what I do think is that they could sell a smartphone that would be able to sell at a much higher ASP than a family type brand like Nintendo

um so they could put a bunch of extra bells and whistles in there um but I just think that the the hindrance there is on content they are gaming content they'd have to leave with something else a deep integration [Laughter] yeah no it is and I mean could Tesla do it yes should Tesla do it probably not like you just because they're just getting distracted by too many things like people are people are talking about Twitter with Elon and SpaceX no one's talking about xai which is the AI company that he started and Tesla it was just reported by semi-analysis uh Tesla's going to be buying a quarter million I'm sorry quarter billion of Nvidia AI servers this year that they're then going to rent to xai so they're just fronting the cat-backs that they're going to rent at below Market rates to xai they're still going to make a margin on it but they're going to make probably half the margin that gcp or or Azure would make renting similar servers or AWS so like it's

like yes they could but should they I I don't I don't I don't think so I'm not really all the time of staying your lane bro but like I think this is a situation where Teslas should probably stay in their Lane in focus on keeping their cars and staying in their Lanes [Music] [Music] thank you