In our current industry update we’ll take a look at the state of casual gaming, which is rapidly changing from killing 20 minutes playing a flash game to a major industry that will rival console gaming in terms of size and critical attention.

Here are some recent developments of significance:

1) iPhone is turning into a proper mobile gaming platform
iPhone games have sold like mad since the beginning, but lately some technology has come along that is really taking advantage of the platform: Crystal and Booyah. Crystal is an upcoming app from Chillingo Software that is kind of like Xbox Live on the iPhone. You’ll be able to earn in-game achievements, track and compare friends’ gaming activity, and post activity to social networks like Facebook. Booyah on the other hand is an avatar game that gives you in-game rewards based on real-life activities. In other words it takes advantage of iPhone as a MOBILE gaming platform instead of shovelware ports like Metal Gear Solid Touch that dumb-down the source material to the lowest common denominator. Taken together, applications like Crystal and Booyah are going to offer iPhone gamers a distinct value proposition from any other gaming device on the market — and there’s more like these coming out for iPhone every week.

2) Micro-transactions are hitting the mainstream:
For a while, the prevailing business model for free web content was that it should be supported by advertising. The only problem with this is that consumers generally dislike and ignore advertising whenever possible. A sustainable model for free-to-play games is taking hold: microtransactions. Applications like PlaySpan’s Ultimate Payment wall and Facebook-supported micropayments are proving to be profitable and unintrusive. These apps give consumers the best of both worlds: free-to-play gameplay that can be fired up at will, but at the same time easy access to new content if the initial offering is quickly mastered. And this gives developers the financial support needed to design bigger and better free-to-play games in a way that ad revenue alone does not offer.

3) Big players getting into the casual space:
There are a couple of different things going on here that are going to broaden the size of the casual market:
1) Retailers are taking note of the casual space. Amazon launched its casual portal in February and GameStop recently followed suit. This is good for casual developers as it gives them a bigger chance to get their product into the hands of consumers.
2) Battlefield Heroes — established IP launches a new casual franchise. EA and DICE’s Battlefield Heroes is an interesting product in that it appeals to both core as well as casual gamers. Core gamers who play the full franchise now have a casual outlet for times when they’re away from the console or home PC. And casual gamers, who many be intimidated by the full version, now have a free-to-play and easy-to-learn title to entice them. It will be interesting to see if other companies follow suit — if so we could see some interesting new titles in the casual space.

The casual space is rapidly approaching a transformation. Pulling all these trends together, I think you are going to see PC (and Mac) gaming make a comeback, driven by the casual market, and smartphones are going to rapidly make dedicated gaming handhelds like PSP and even, GASP, the DS, obsolete. Add to that rumors of an Apple Tablet, and Project Natal coming out next year, and we are looking at a brave new world of casual gaming.