Mobile gaming was once simple games like "Snake" that were meant to kill time, but the market is rapidly becoming a lucrative business. Thanks to smartphones like Apple's iPhone 3G, mobile gaming rose 20% and hit $5.4 billion in 2008, according to a new report from JupiterResearch.

The report said overall game downloads were flat in the U.S. and Western European markets, but volumes rose in developing markets like India and China. While Java-based games saw a steep decline, those volumes were offset by a sharp increase of iPhone game downloads.

"The combination of iPhone and the Apple App Store has galvanized the mobile games industry," said report author Dr. Windsor Holden in a statement.

"Apple has provided an innovative device which enables developers to create smooth, compelling, visually attractive games for the mobile users, together with a business model offering a highly competitive revenue share for developers."

The touch input, robust hardware, and graphics capabilities have given the iPhone an advantage over its rivals on the mobile gaming front. Users of the iPhone also download apps at a higher rate than other phone users, and the platform has drawn high-profile developers like Electronic Arts and Sega.

One of the advantages the iPhone has over its competitors is the tight integration of the App Store. This makes browsing, buying, downloading, and installing games over the air easier than on most rival platforms. Additionally, users with an iTunes account already have a credit card on file, which makes buying games easier than on other platforms. For example, Google's Android Market uses Google Checkout, and Research In Motion will use PayPal for its BlackBerry App World.

The report also said that more than half of games downloaded by 2012 will be funded by advertising. This could drive additional business opportunities for the likes of Medialets, which has a rich media ad platform for iPhone apps.

Each year, InformationWeek honors the nation's 500 most innovative users of business technology. Companies with $250 million or more in revenue are invited to apply for the 2009 InformationWeek 500.