Electronic Arts (NASDAQ:EA) is testing game designs for Apple's (NASDAQ:AAPL) recently unveiled Apple Watch. Although Apple has not discussed the gaming capabilities of its smartwatch, two of EA's internal research and development teams are experimenting with prototype designs.
Frank Gibeau, head of EA's mobile games division, recently told CNET that the teams are working on "stand-alone" experiences, along with concepts that "use the fitness component in the watch" to unlock content in companion iPhone games. Gibeau also said other wearable devices, such as Google Glass and Facebook's Oculus Rift, presented unique opportunities to redefine mobile gaming.
Could EA really bring gaming to the wrist, or are smartwatches simply too small to accommodate mobile games?
Why EA is interested in smartwatch gaming
Electronic Arts is eager to test out smartwatch gaming, because it can tap into the rapidly growing mobile gaming and wearables markets at the same time.
Research firm Gartner expects global revenue from mobile games to nearly double from $13.2 billion in 2013 to $22 billion in 2015. During that period, console gaming revenue is only expected to rise 24% to $55 billion.
According to research firm ON World, the number of global smartwatch shipments is expected to increase from 4 million in 2013 to 330 million by 2018, easily outpacing the projected growth of smartphones and tablets. Samsung sold 500,000 smartwatches in the first quarter of 2014, claiming 71% of that young market, according to Strategy Analytics.
However, most analysts believe Apple's Watch will disrupt that market and finally convince more mainstream customers to buy smartwatches. Earlier this year, Morgan Stanley analyst Katy Huberty stated that Apple could sell 58.5 million watches in its first 12 months on the market.
The challenges and opportunities for EA
The biggest challenge for smartwatch gaming is the screen. Top iOS games like Clash of Clans, Candy Crush Saga, and Minecraft: Pocket Edition simply can't be scaled down to tiny screens. Native smartwatch games would likely rely more on motion sensors than the touchscreen and display. For example, Flying Tiger Entertainment recently unveiled iArm Wrestle Champs, an Apple Watch app that uses motion sensors to track an arm-wrestling match against a friend.
In my opinion, it's more practical to use Apple Watch as a companion device for the smartphone. A smartwatch would be an ideal platform to remind mobile gamers when in-game energy was refilled or tasks were completed. The smartwatch could also be used as a motion-sensing controller for smartphone games. For example, Temple Run could be played by tilting the wrist left and right instead of swiping the screen.
But the biggest opportunity is to link mobile gaming with the growing demand for health-tracking features in smartwatches. A mobile game enhanced with those features could reward extra energy based on steps taken rather than minutes waited.
What this all means for EA
EA's mobile portfolio, which includes EA sports games and mobile spinoffs of console titles, is becoming a major pillar of growth for the company.
Last quarter, EA Mobile had 140 million monthly active users -- 10 million more than Zynga. Revenue at the segment rose 9% year over year to $123 million, accounting for 10% of the company's top line. EA's main rival, Activision Blizzard (NASDAQ:ATVI), only recently diversified into mobile games with Hearthstone, a digital card trading game based on World of Warcraft, and mobile spinoffs for Call of Duty and Skylanders.
Since EA has such a head start in mobile games, it's smart to look for new ways to enhance the business and keep things fresh. If Apple Watch sells well when it arrives next year, EA could dominate the platform early with stand-alone games and companion apps for its mobile games.
A Foolish final word
Apple still hasn't revealed the exact hardware specifications of the Apple Watch, so it's hard to know exactly which games will be the best fit for the device. Moreover, recent reports suggest the device's battery only lasts a single day, which makes it a questionable platform for power-hungry games.
Despite these problems, Apple's Watch and other smartwatches represent an interesting opportunity for mobile games. Given EA's successful track record in this segment, I think the company could successfully launch smartphone games, although it will likely need to experiment with plenty of different approaches before finally getting it right.
Leo Sun owns shares of Apple. The Motley Fool recommends Activision Blizzard and Apple. The Motley Fool owns shares of Activision Blizzard and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.