Wednesday, 30 March 2011

Could Nintendo eventually be the next Nokia?

This past weekend, Reginald Fils-Aime (Head of Nintendo USA), was busily giving away the latest version of Nintendo’s Uber portable gaming machine, the 3DS, to throngs of fanatic shoppers at Times Squares’ local Best Buy Store. The much-hyped launch of the 3DS in the US, is Nintendo’s biggest console extravaganza since launching the Nintendo Wii back in 2006 and galvanized eager consumers to line up in the freezing cold to get their hands on the device for hours.

The console certainly has had a promising start. Over 200,000 units were sold in Japan the first week of launch and the company is seriously banking on this device to reverse its fortunes (which given its stock price it should – click here). The question is will it be enough?

Several weeks ago at GDC in San Francisco, Nintendo’s President, Satoru Iwata, spoke of the imminent launch of the 3DS and it’s ability to revolutionize gaming through its use of 3D, ability to run apps, take pictures in 3D, incorporation of Netflix and a host of other features. Bizarrely though, he completely minimized or ignored the threat of mobile gaming to the 3DS offering. Nintendo, he said, would never go down the route of mobile gaming as the experience would dilute and undermine the quality of the types of games Nintendo was trying to develop. Nintendo apparently has a difficult time recognizing mobile as a genuine gaming platform.

The strange thing about Nintendo’s denial of the rise of mobile gaming is that mobile gaming is doing to the handheld space exactly what Nintendo did to the console space with it’s Wii launch nearly 6 years ago. When Nintendo introduced the Wii it was lauded for its simplicity, design, fun factor and ability to do what no other console could really do: broaden the market beyond non gamers. Nintendo famously embraced what Insead professors Chan Kim and Renee Mauborgne dubbed “Blue Ocean Strategy” in a book by the same name. They choose to move away from the power, graphics and heavy-duty processor wars that had featured in the console industry and instead reinvent the industry by making a machine that was less powerful but more fun and more open to growing the gaming audience. The result was that the Wii became the best selling console of its time with over 34M installed units to date in the US alone.

With the 3DS Nintendo seems to be taking the opposite approach. The 3DS is its most powerful handheld gaming device yet with 2 266mhz Arm11 processors, dual stereoscopic cameras, 800x240 top pixel screen and full 3D graphics that don't even require 3D glasses to use. However, as a gamer and someone who’s worked in mobile games for the past 6 years I’ve got to question the logic of this direction.

First, consider the audience. As far as I understand, use of 3D is not recommended for people under the age of 6 and I would interpret that to mean it isn't ideal for 8-12 year olds much either. So the device will likely be targeted at 12-18 year olds or 18-24 olds. This is a similar demographic to those playing games on iPads, iPhones, iPods and increasingly on Android devices. Nintendo’s traditional gaming audience for their portable devices was much younger then this. Typically teens or young kids who might not even have access to mobile phones. The new strategy puts them much more squarely in competition against Apple and Google. In this respect they’re facing rivals who have both incredibly strong brands but also global reach and distribution as well as the marketing muscle of the carriers who push their devices. Granted these guys aren’t pushing solely gaming and their message can get diluted through multiple marketing campaigns by carriers all over the world but keep in mind that Verizon’s marketing launch of the initial Droid probably was on par with what Nintendo will spend to market the 3DS in the US.

Second, consider the value proposition. Yes the 3DS is cool and yes the games are awesome, but is the value proposition really enough for consumers? Is 3D really a good enough, sustainable point of difference to shell out an extra $250 plus $20+ per game when I can have pretty damn good experience on a mobile device – which I also happen to always carry with me and allows me to do 300,000+ other things as well (including voice calls for that matter) for $150-200 plus $1-$6 per game? As a gamer I just don’t see it and I’m not sure others will either.

Lastly, Nintendo doesn’t seem to realize that the entire paradigm for the console industry is changing. Console hardware has been typically updated every 5-7 years (the DS launched in 2004). In the meantime developers build games that try to eke out every drop of processing power from existing hardware until the next machine comes out. Mobile has changed all that. New, more powerful devices are coming out every 3-6 months and major improvements are happening yearly. This means developers are accessing a bigger and bigger market as smartphone penetration increases while also developing better and better games as devices improve. It also means that content is being developed at a rate that is far faster then it would be for a console ecosystem. One of the criteria gamers use when deciding on a device is the content available. How many games are there? How expensive are they and how easy are they to buy? Again, mobile gaming has dramatically changed the competitive picture for Nintendo here. Not only do I not have to leave my couch to get a new game, but also I don’t have to pay more the $5 (and that’s for an expensive game!) and I’ve got tons of new games literally at my fingertips every single week.

Is Nintendo sticking its head in the sand? Sounds a lot like a certain Finish handset manufacturer that as little as 5 years ago could do no harm and pretty much moved the handset market wherever it wanted to. We all know how that story has turned out so far…