Is the iPhone the New Kindle?

Digital books recently upstaged games in the iPhone app category, according to one mobile analytics firm that’s predicting the uptick in volume means serious competition for the e-reader market.

Games have dominated the inventory at the Apple (NASDAQ: AAPL) App Store since it opened in July of last year, but digital books recently eclipsed games to take the top spot, according to mobile app analytics firm Flurry, which researched the number of applications released to the App Store, by category, since its inception.

“From August 2008 to August 2009, more apps were released in the Games category than any other. This September, however, we observed another category, Books, usurping Games for the first time ever,” writes Peter Farago, vice president of marketing at Flurry, in a blog post.

Even as digital books overcome games in the App Store, the iPhone and iPod Touch are already nibbling away at the portable gaming market share enjoyed by heavyweights Nintendo with the handheld DS and Sony with the PSP.

Nintendo said during its Oct. 29 earnings call that profits fell for the second quarter in part due to competition from the iconic handset, while a recent study by video research firm DFC Intelligence predicts the iPhone will be the “primary driver of growth” in mobile gaming.

The worldwide market for portable and mobile games is expected to grow to $11.7 billion by 2014, according to DFC, which said by then sales of iPhone and iPod Touch games will comprise nearly a quarter of total software sales in the category.

“The dedicated portable game systems from companies like Nintendo and Sony are still expected to lead the market, but it appears growth for these devices has peaked. The platforms from Apple are expected to be responsible for the bulk of market growth over the next few years,” David Cole, analyst at DFC, said in a statement.

Furthermore, DFC’s findings show smartphones — and the App Store — are increasingly becoming more popular among gamers. For instance, 54 percent of respondents in North America and 69 percent in Europe had played a game on their mobile phone in the past year. Among respondents, the App Store was already the most popular service for making purchases.

Surge in digital books

Flurry’s Farago sees the recent surge in digital books for the App Store as echoing the dynamic in the mobile gaming market, taking on the leader in the e-reader space, Amazon’s Kindle.

“The sharp rise in e-book activity on the iPhone indicates that Apple is positioned to take market share from the Amazon Kindle as it did from the Nintendo DS,” said Farago. “Despite the smaller form factor of the display, we predict that the iPhone will be a significant player in the book category of the Media & Entertainment space… we believe Jeff Bezos and team will face significant competition.”