Licensing a brand for your mobile game? Some things to consider

I was at the Login Conference in San Francisco the other day and had the chance to listen to +Henry Oh from Animoca give a great talk about IP licensing for mobile games. Henry had some great points I wanted to share and elaborate on that I think all developers considering IP licensing should really take note of as well as add some of my own.  A few other experts worth seeking advice on include +Greg Suarez and +Steph Ansari who led all our IP licensing efforts when I was at glu eons ago.

One of the first things to consider is why do you want to license a particular brand?  Is it a particular target audience you want to reach?  Are you looking to build the profile of your studio by associating yourself to a particular IP holder or brand? Are you trying to build awareness with platform holders who you think won't notice you without a brand being attached to your game? Do you think you can leverage the marketing of the IP holder to give your game a boost?

These are all critical questions you should be asking yourself since they are fundamental to the success of your game.  Let's look at them in order:

1.  Audience:  Different audiences react and engage differently with different brands.  If you're looking to reach the affluent hardcore male gamer 25-32 (middle/ upper middle class) in the US market certain properties won't resonate as well as others.  Halo may work well while a property like Doom might be too old.  That said if you were targeting veteran, old school gamers 32-45 years of age, Doom might be a great choice. Understanding your audience and what brands resonate with them is the first step to choosing the right brand.  I recommend really doing some research and also asking IP holders to share their own research and demographic profiles to see how their brand resonates with.

2.  Company Profile:  There is sometimes the belief that getting a big movie brand or licensed property will do wonders for your image.  When mobile gaming was in its infancy and carriers and platforms wanted strong brands to drive consumer interest that was partially true.  Today with over 120M Americans playing games the market is already fairly mass market so the need to use brands to drive user engagement is less true than it used to be.  In addition, using big brands can have two drawbacks as well.  Sometimes it creates an expectation on the behalf of the user which the product doesn't live up to.  On the flip side some platform holders have become weary of certain games (particularly movie tie-ins) where the pressure to get the game out in parallel to the movie creates an average or even disappointing product for users.  The reality is that users and platform owners want the best, highest quality product; period.  Slapping a brand on the game only heightens that expectation so living up to it is critical.

3. Awareness with platform holders:  Though having the rights to a big brand might help get a meeting with Apple or Google's marketing team keep two things in mind:  First the brand should be relevant and very mass market.  Picking up the license to something that was big 5-10 years ago has far less impact than something that's either about to come out or can be released to coincide with the release of the digital movie in the store.  Few titles by themselves generate meaningful downloads for Apple and Google at this point (they simply have too much scale) though some generate meaningful revenues (Clash of Clans, Puzzles and Dragons, Despicable Me).  Platform holders are interested in brands that really cut through the noise and hopefully provide a tie-in to other content that can be promoted in parallel (book, movie, album).

4. Marketing:  Always the Achilles heel of most developers.  The expectation by platform holders will be that if you're bringing a big brand to their platform you'll also have negotiated solid marketing support for the game.  That would be one reason they would feature you and co-promote your title.  It's really key to discuss this with IP holders at the contract stage and get a firm commitment from them to co-market the game on your behalf.  This is easier with titles that are launching in conjunction with a movie or book since the IP holder has a vested interest in driving exposure of the property overall.  Otherwise it's extremely challenging.  Things you can request / negotiate that typically are doable:  1.  Mention in any press releases related to the broader property.  2.  Mention in any below the line marketing (email) the IP holder is doing for the property.  3.  Mentions on the IP holders' social channels. 4.  Introduction to other licensing partners the IP holder may have to investigate co-marketing opportunities with them (think cereals, soft drinks, chocolates, plush toys etc.).  In some cases IP holders will actually organize mini events to get all the licensees together to foment cross promotions.  These things typically don't cost the IP holder anything and should be fairly straightforward.  Other things you can try to negotiate which are typically harder: 1.   A link / badge on all outbound marketing material that promotes your game - magazine ads, online, mobile, email. and even billboards.  Years ago when we launched Fast and Furious Universal agreed to have a small call to action on their billboards in London for the game.  This type of marketing is sure to generate interest among platform owners.  2.  Unique promotional items to be used with partners.  For example, if you're doing a movie game you could request signed merchandise from the cast to give away as promo items.  You could then run a social competition on Facebook or G+ with Apple or Google.  3.  In person appearances / interviews.  This is really tough to do but when I was at Google play we were able to secure an interview with Spielberg for Lincoln over a live hangout with fans.  This hangout was then broadcast using ABC's Jumbotron in Times Square.  Again, this type of deal is very challenging to do but if your marketing team is good you can try to negotiate these types of marketing activities up front with IP holders.  I would typically even have these conversations with IP holders at contract stage so you can set expectations.  If IP owners are lukewarm or non-committal you should really consider whether to develop their game at all since you'll loose a key leverage.

As Henry mentioned, lots of other factors go into determining a successful branded game launch and a good and fair contract.  When negotiating these deals keep in a mind a few other points:

1.  Timing:  Does the game release happen in parallel or after a major event related to the IP.  Timing has an impact on development milestones and will impact quality.  As mentioned above timing can be key to securing great marketing support as well so make sure you pay close attention to this and time your launch accordingly

2.  Economics:  Pay careful attention to deal terms.  Many IP holders will demand a minimum guarantee which is sometimes recoupable against future sales as well as a royalty on sales.  I would avoid up front guarantees if at all possible and try to keep royalties under 30%.  In addition if you have to give an up front payment make sure that it is recoupable against future sales and not on top of the royalty rate you need to pay.  You're already sharing the brunt of the burden and risk by developing the game so you should minimize further payments that could suck up valuable cash you'll need elsewhere in your business

3.  Geographic distribution rights:  I would always negotiate global rights where possible.  In particular I would make sure you at least have rights to cover Apple and Google's top markets (you can typically get this data from the likes of +App Annie and Distimo).  Make sure you at least get the US, EFIGS, Korea, Japan and China (for iOS).

4.   Creative control: I would try to get as much visibility up front on who has creative control and at what point you have to share the beta and alpha versions of your game (or even the early script for that matter).  You need to know very clearly who has control over what and how many people are involved in this process.  Typically the fewer people and organizations involved the better.  The last thing you want / need is for the movie studio to say one thing but the family / author who developed the book or franchise to say something else.  Establishing clear owners, milestones and responsibilities is key to getting a quality product out on time and on budget.

5.  Platforms:  Be forward thinking when negotiating this.  I remember when I was a glu we failed to sometimes negotiate or secure rights to certain platforms because we didn't think they were relevant.  This can really come back to bite you in the a@! if you're not careful.  Always negotiate the key platforms first and give yourself the option to develop on future platforms as well.  Who knows, Ouya might not be relevant now but in 18 months it could be very relevant in emerging markets.

Anyway, hope this helps and good hunting.  Whatever you do if you build a great quality product you should always do well regardless of whether you're using somebody else's brand.  Who knows, that next big brand might even be yours...

Mad Mork

iPhone 5S / 5C: Winners and Losers from Apple's announcements today

Apple today announced not one but two new iPhone 5 devices (as pretty much everyone in the blogosphere had been anticipating given recent leaks).  Their basic strategy was to continue to improve on their existing line of high end, premium iPhone devices by introducing notable improvements in the 5S while also fending off low competition in the sub $100 part of the market from the likes of ZTE, Hauweii, Xiaomi and others who have recently been taking a noticeable amount of market share particularly in China.

Did they succeed?  who does this affect?

On the high end part of the market the 5S improvements are mostly on the inside.  The biggest improvement is the new Apple-built ARM A7 chip which they claim is 2x faster than the A6 chip present in the iPhone 5. There's also a 40% improvement in CPU speed but what really matters here is that this chip will allow 64-bit apps to run on the phone.  From a game developers perspective this has the potential to set a new standard in gaming as the live demo of Infinity Blade III showed today.  If you couple this with Apple's announcement of it's motion sensing M7 chip that sits along the A7 then not only are we talking about richer games but also about a whole new range of motion related possibilities that open themselves up for both gaming and fitness apps.

winners:  consumers, game developers, ad networks that help developers promote games
losers: traditional console OEM's (Microsoft, Sony, Nintendo) as these devices loose their performance / graphics edge; Android, Windows Phone, Blackberry (as developers continue to prioritize iOS first for games due to the perception of it being a better gaming platform)

Other improvements included a much better camera with Apple focusing on the "active sensor area" as opposed to the actual number of mega pixels present in each shot.  This is an interesting marketing ploy as they attempt to move the conversation away from the race for more Mega Pixels (which Nokia currently dominates with the Lumia 1020).  The risk though is that apart from camera aficionados, many consumers may simply not understand the jargon.

winners: consumers, possibly OEM's selling printers for consumers interested in printing their photos
losers: Nokia (since the main marketing message around the 1020 is its 41mp camera) if Apple is really able to communicate this in a consumer friendly, compelling way; traditional point-and-shoot cameras from the likes of Canon and others since the difference in resolution is becoming smaller and smaller.

One cool thing Apple introduced today was a Fingerprint ID which is now embedded into the Home button. This had been a bit anticipated since the release of iOS 7 but provides a nice extra level of security for consumers worried about having their phones stolen (my mother in law would really have appreciated this last week!).  The sensor basically scans your finger or thumb to provide heightened levels of security compared to 4 digit passwords or face recognition.  Though this seems like a gimic, it could actually prove pivotal if Apple goes down the route of pushing its own payments platform (it currently is one of the largest holders of credit card information globally through iTunes).

winners:  consumers, app developers, credit card companies (through reduced fraud)
losers: Should Apple couple this with some form of NFC at a later date, companies like Square could be in trouble.

Colors.  More colors!  Apple finally introduced new colors for the the iPhone. The iPhone 5S now comes in Gold, Black and Silver.  Though a minor change, clearly this allows consumers to have a slightly more personal style to their phones aside from cases (though I don't see the diamond-laden or Angry Birds cases going away anytime soon).

winners: consumers
losers:   OEM's offering multi-colored devices.  Nokia and HTC are the main ones that come to mind.  HTC just introduced the HTC One in blue while Nokia has touted its blue, red and yellow Lumias since launch. The shame here is really for Nokia since they were really never able to capitalize on this small design distinction in the US market. Other loosers could be the providers of personalized cases for Apple like Otterbox, Speck and others

Ok what about the "cheap" iPhone?

Yes, Apple introduced the 5C today.  I'm not going to go into the details of what the 5C is or it's specs.  The folks at Techcrunch have already done a great job of that and you can get the details here.  Suffice to say that at $99 on a two year contract (for the 16GB model) it will sway some users that have opted for new, cheaper Android devices in the past. However, sporting an 8mp camera, 16gb of storage, retina display and multiple colors using a plastic case, I'd say that they are targeting a young, sub 25 demographic not only in Asia but in South America and even in the US.  Though $99 Apple devices have existed for a while in the US this is really the latest tech targeting the youth demographic.  The strategy follows the same thinking they used to develop the iPod line of products and makes a lot of sense.  The only concern I see here is margins. If the 5C is a run away success it could cannibalize sales of the 5S or weaken carriers abilities to get rid of iPhone 4S stock (though this device will now be free on a 2 year contract).

winners:  sub 25 year old consumers, consumers in emerging markets, app developers (as this will broaden the IOS base)
losers: Hauwei, ZTE, Xiaomi and other Asian OEM's targeting the low end of the market; Android overall as the 5C may blunt Android's rise in emerging markets; Qualcom, Nvidia and other providers of chips for Android devices as iOS takes more market share.  The other big potential loser here could be Nokia if Apple is able to use the 5C to make inroads into India and South East Asia.  At this price point the 5C will definitively compete with Nokia's Asha line of devices.  Also Apple shareholders could be the losers here if the 5C margins are less than the 5S and end up cannibalizing it.

So that's a wrap for today!  I'm not going to cover Apple's software related announcements in this post. Plenty of other folks covered that.  A last parting note is that I didn't see any mention of NFC coming to Apple's latest devices which spells trouble for NFC in general.  This is a bit suprising to say the least but maybe the folks in Cupertino figure that sharing through Airplay between Apple devices is enough. Consumers really seem to be the losers on this one since sharing between iOS and other devices could be much easier than it currently is.

Mad Mork.

Why Google's Play Store will eventually trump the App Store - Ads

A lot has been written this past year about how Android's Google Play store is catching up to the App store.  Certainly, a lot of the numbers seem to bolster this claim.  The Google play store boasts in excess of 1 million apps to date which is slightly ahead or an par with Apple (though the number of tablet based apps is far less than IOS and continues to present a challenge).  In addition, Play has launched music, movies, books, magazines across a number of major markets in the past year and matched IOS in games with the launch of its Play games service (though no numbers have been disclosed to give us an idea of how many games have integrated the service nor the current number of users).  More importantly, Google has been smart to capitalize on its digital content platform beyond simply consumer facing content.  At Google IO they announced the launch of Google Play for Education which will allow educators and IT administrators to essentially use a version of the play store built for education to provision students using Android tablets with apps, books and other materials.  More recently they also released Textbooks to allows students to buy their textbooks online (the backs and shoulders of many will be thankful)

But I believe more is yet to come...

The biggest challenge for content owners / creators continues to be discovery.   Though services like Play Games will help developers find new ways to promote their content to a more targeted audience while search and better merchandising help users find new content, the truth remains that as more content becomes available it necessarily becomes more and more challenging for consumers to find what they want.  Let me use my own situation this morning as an example.

Here's a screenshot of what I saw today on the home page of Apps when I opened Play on my laptop.

So what's wrong with this picture?  Well for starters, I don't really give much of a damn about Fantasy Football and don't, no matter how many companies they buy, ever use Yahoo! services so right off the batt 1/4th of the recommended list doesn't really interest to me.  Last I checked I also haven't been in school for about 13 years so the entire row of "Back to School" apps goes down the drain as far as I'm concerned.  Scrolling down the page I was also presented with a "Keep in Touch" section which, though cool, presented 4 apps I had already installed.  I'm not sure the value of reminding me about stuff I already have to be honest but understand the challenges around merchandising content for a mass market audience.

The problem here: relevance and lack of customization.  Luckily, Google has both the tools and brains to fix this and in my opinion (yes, obviously I'm biased) in a better way than Apple.

When I was a GetJar, our whole reason for being was to offer developers the chance to better reach consumers by allowing them to bid for targeted placement across our app store.  Developers could bid for placement to get heightened visibility and depending on their bid and the relevance of the ad and level of interest they would get featured in premium placements across the store which helped drive downloads of their apps (sounds familiar?)

So it would seem that Google could easily solve the discovery problem in part by introducing an Adwords style system directly into Google play. Introducing ads into Google play would:

1.  Enable developers to have some control over the effectiveness of their ad dollars by bidding for placement directly where consumers happen to be.

2.  Provide a level playing field where developers would compete / bid against each other for placement.  Successful placement would depend not just on the level of the bid but also on relevance and also consumer interest (as measured by the click through rate the developers app has received to date).

3.  Better monetize the play store with a product (ads) which is far more profitable for Google than content. (I can see Google's CFO +Patrick Pichette smiling already)

4.  Provide Google play with a unique differentiator against the Apple App store by giving developers much more control over their ability to market their content to consumers

5.  Provide Google's ad sales team with a unique, highly differentiated product targeting a highly prized audience of Android users (minus those in China of course...(sigh)).  +Jason Spero rejoice!

So it would seem like a no brainer coming from the company that pioneered online ads that this would solve a lot of problems both for consumers, developers and the folks on the Play team.  So when will we see ads in Google play?  

who knows...but surely the obviousness of the opportunity hasn't been lost of the folks in Mountain View.  Stay tuned ;)

MM

Good Bye Google Play, farewell app stores

Well,  seems like the news is out ;)  

Pretty tough to keep a secret, so I guess I shouldn't really be surprised.

It's hard to believe, but it's been almost 5 years since I joined my first app store (GetJar in 2008).  So much has changed since then.  The emergence of iOS and Android as the two dominant mobile operating platforms, the amazing rise of tablets, the establishment of mobile gaming as a mass market platform and of course the re-branding of Android market to Google play among other things.

As for Google, well it's been a pretty amazing ride.   I have to admit it was a bit ironic for me to join the same company I'd been throwing stones at for years from my perch at GetJar.  What I can say in all honesty is that many of the issues I ranted over have really improved over the past few years.  Developer monetization, app discovery, international expansion, payments, localization and developer tools have all increased markedly.  Moreover, Android Market made the transition from "free" app store to full fledged media hub.  I think few would argue that Google doesn't take content seriously anymore.  Fewer still would argue how successful the company has been over the past few years at making the changes that were needed to create a viable challenger to the App Store although a lot still remains to be done.  This has been, in large part, due to the incredibly hard work, passion and dedication of the team at Google Play.  In my time there, one of the things I discovered about Google is what truly sets this company apart from others: its people and culture.  I could never have imagined what it would be like to work there.  The level of transparency, the endless quest to think big and make a lasting difference, the passion for building disruptive products, and the endless concerns over user experience and privacy.  All these things are very real and they ultimately are what drive nearly every person to be their best and to work with unending passion at what they do.  I don't think this is something that non-Googler's can easily understand.  People at other companies drink the cool aid.  Googlers swim in it.

As for me, I'm going to go back to what I love best: building small, innovative companies.  Most likely in the consumer services and/or content space.  As I look around, I've never been more excited about what's happening in mobile.  I believe the next few years are going to revolutionize the way content is produced, distributed and consumed.  A number of industries are reeling from the changes mobile and tablets have brought to the market already:  

• The games industry where +Nintendo Wii U sales have gotten off to a timid start since launching in November.  At the same time +Microsoft managed to alienate gamers and retailers the world over with policies ranging from requiring consumers to stay connected while denying them the right to play used games on their new consoles (they’ve since backtracked on both of these points)  
• The transportation industry where companies like +Uber and +Sidecar are disrupting the market by making it easier for consumers to hitch a ride when they want, wherever they want without even needing to carry a wallet while drivers benefit from safer customers and cashless payments. Just imagine what's next?  Personally, I need a mobile babysitter service please!
• Healthcare where companies like Health Tapp are providing consumers readily accessible medical information and seamless access to doctors to reduce doctor visits and trips the hospital.  This app helped me figure out I had a fractured toe and how to take care of it without ever seeing a doctor.

So its off to a new adventure for the Mad Belgian and I'm looking forward to every second of it.  For now, some well earned vacation and summer with my kids. But this next chapter is going to be amazing and I look forward to writing it with some of you reading this post!

To quote someone famous:  If you do what you love, you'll never work another day in your life.

Mad Mork.

The 5 Keys to improved hiring in startups

Hiring is one of the most important things you’ll ever do.  Whether in your own company, someone else’s or a large publicly traded company.  The biggest difference though for a start-up is the wrong hire can literally kill your company.  While other companies that are larger can put low performers on performance plans or transfer them to other departments in a start-up you’re stuck.  You’ve just wasted 3-6 hiring them, several months getting them up to speed and now you have to start all over again.

Over the past 10+ years I’ve built teams for 4 very different companies both in Europe and in the US and seen a lot about what works and what doesn’t.  If I had to start over, and I probably will at some point, here are the 5 most important things I’ve learned in the process:

1. Hire A teams:  Never, ever, no matter how much pressure you’re under hire anything but the best talent you can get.  I’ve seen first hand at Google what the impact is of hiring great people.  They learn faster, solve problems more quickly, identify and fix problems without being asked, are hungry, ambitious and want to get things done.  The flip side is they are typically more demanding, more critical and more difficult to manage.  My team at Google is probably the best I’ve ever managed but they also require the most management and are really challenging.  Lastly, the great thing about hiring top talent is they will push you to be your best day in day out and at the end of the day we all want to get better or we wouldn’t be doing start-ups would we?  Lastly, don’t be afraid to hire people who think very differently to how you do (avoid group think!) and also hire people who complement your skills and are even stronger than you are in their respective areas of expertise.  
2. Hire generalists: One of the biggest mistakes I’ve seen people make, and I’ve made it too, is to focus on hiring exactly for the job description I’ve outlined.  While this may be critical for some roles that are really technical in nature often times you might miss some really amazing people.  The great thing about amazing generalists is exactly that:  they are generalists.  They are flexible, you can move them around and you can always find things for them to do.  For example, I’ve worked with customer support people that turned out to be great social media marketers.  Why?  because they understood how to talk to consumers and they understood the need for great customer service.  I’ve hired marketers that turned out to be great sales people.  They were creative, charismatic, enjoyed being with people and just naturally understood how to sell.  Once we hired a former executive recruiter to do sales.  I was against it.  I was totally wrong.  His empathy with people made him a hit with customers.
3. Don’t hire just based on skill but on cultural fit:  This is especially important in start-ups but it’s something that’s also really important at Google.  You may find an amazing coder, a person of pure genius who can program blindfolded, one handed and without sleep for 48 hours straight but...if he’s unmanageable and can’t work with others and makes your life a living hell over time he may do more harm than good.  That kind of attitude breeds resentment among others, it may affect their work, they may become demotivated and you might even lose some of them.  The small companies that really thrive also do so because of the culture they build and that culture is product of those who work there.  Everyone contributes to it.  One test I’ve always liked is the 2 hour plane test.  If you are hiring someone ask yourself whether you could sit and make small talk with them for 2 hours on a plane and whether other key people they’ll interact with could.  If the answer is no you have your answer.
4. Interview exhaustively and interview smartly:  A friend of mine at Google who’s been around once mentioned he went through probably 10-12 interviews before getting an offer.  My own experience wasn’t too dissimilar and it was long, challenging and somewhat painful.  But in truth it works and contributes to the amazing culture Google has today.  First,  make sure any and all relevant stakeholders that are going to work with this person spend a few hours with them.  I can’t stress this enough.  The folks who will work day in day out really have to sign off on the candidate and more importantly will be able to identify and pick-up on many things you might miss.  Second,  use real life case scenarios when interviewing.  Back at GetJar I used to ask 2nd round marketing candidates to write a marketing plan for me and then come and present it to me and the sales teams.  Putting candidates in real work situations gives you an opportunity to really see them in action and keep them on their toes.  Lastly, interview them in different contexts.  For example if the role is critical enough you might want to invite them for dinner with a few colleagues and see how they behave and react after a few beers and in a different environment.  I once inherited a guy who couldn’t hold his alcohol in public.  He went on to insult our biggest customer and we had to let him go.  Context can be critical.
5. If the role is critical call in the hunters:  yes, we know you’re a start-up and you need every penny.  But the truth is human capital is your most valuable asset.  Everything else you have or own is replaceable or can be obsolete in 6-9 months time including your technology if you’re not paying attention.  I’m not saying not to use your network or Linkedin.  These can be invaluable and if you can save the money that’s great but in my experience good headhunters can save you time, money and a lot of headache.  The key is to hire the best folks in the business.  I recommend you use the best you can find.  If you’re VC funded asked your board to recommend someone, if not and you have the money firms like Riviera Partners, The Cole Group, Ignition Search Partners are among the most respected.  Other more traditional firms like Korny Ferry and Egon Zhender may on occasion do start up assignments but they typically will work with larger, more established companies.   One thing I’d recommend though is to do some background on which partner you will work with.  Like anything, the firms is only as good as the people who work in it and you want to get the best people within the firm conducting your search.  Look for partners who really understand your space, have experience and a vast network in it and preferably have placed people in your field in the past 3-6 months.  Finally, the key to using executive search firms is to a) properly brief them, b) give them time (the process can take easily from 3-6 months typically) and c) really pay attention to what they are telling you about candidates and the market.  Jeff Markowitz at Greylock has a great article which is a must read if you’re going to go this route which you can find here.

Anyway, i could write volumes about this and have some great stories on the subject but hopefully these tips will be helpful.  Maybe for my next piece I’ll pen something on how to manage those great people or the 5 tips on what to do if 30 days in you realize you’ve made the wrong hire.  Happy hunting!

The Wii-U: Nintendo's last gaming console?

This past week Nintendo announced the merging of its console and handheld business units (read more on this here).  This follows the December launch of Nintendo TVii which allows consumers to watch TV, sports and movies on TV using their console.

But is this really enough to bring the gaming giant back to its glory days of 2007?  Not very likely.  The original Wii revolutionized the gaming industry with it's energetic and fun approach to gaming, unique motion sensing controllers and cut rate price.  The Wii was not only the best selling game console of all time with nearly 100M units sold by September 2012, it broadened the gaming industry by making console gaming social and proved that gaming didn't have to be expensive or dedicated to hard core gamers alone. Games like Wii Sports and Wii Golf were quirky, intuitive and fun.  They got gamers off the couch swinging, batting, bowling and jumping like never before.  More importantly, the Wii was significantly cheaper than its competitors the PS3 and Xbox 360 since its focus wasn't on high end graphics but on gameplay.  That said, the FT reported in 2008 that despite its low price, Nintendo actually made an average profit of $6 per unit due to supply chain efficiencies and the enormous economies of scale it drove by producing over 1.8M units a month.  Nintendo's all time high stock price? $78.50 on Halloween 2007.

Fast forward to last months launch of the Wii U.  Despite robust sales and retailers running out of stock, Nintendo announced that it sold 400k units in its first week of sales.  That compares to 600k units of the original Wii during its first 8 days of sales back in 2006.  Despite lots of buzz, an enormous marketing campaign and a more powerful device complete with a unique tablet controller the magic simply isn't the same.

What's changed?

First, the device is simply not as revolutionary as the Wii was back in late 2006.  The addition of the tablet controller is nice but it's more of a gimmick.  It doesn't fundamentally change gaming or encourage people who don't play to want to play games.  The tablet provides some element of convenience by allowing people to continue to game from TV to tablet but this now seems obsolete given Google's announcement back in October that Android 4.2 will include Miracast technology by default which will allow consumers to screencast the content on their phones / tablets directly to their TV's using Miracasts peer-to-peer technology over Wifi.  At CES I saw a number of companies already displaying the use of this technology to show apps, TV shows and music being streamed to smart TV's.

Second, the device is simply too expensive.  The base version is over $350 for the 8GB version and more than $430 for the 32GB version.  Not to mention that you still have to shell out $50-60 per game in addition to the cost of the console.  This comes at precisely the time when most people in Europe and the United States are still careful about spending and might think twice before spending that kind of money on something that could provide gaming as well as much more than that.  Nintendo gaming has always been about mass market casual games but if you're now able to buy pretty good Android tablets starting at $199 with games ranging from $.99 to $8.99 the value proposition just doesn't seem as compelling.  

Nintendo's last challenge is simply the dynamic of the console industry itself.  Which is the third key problem.  The video game market has completely changed right under Nintendo's nose.  The typical console life cycle is 6-7 years but in the past 6 years we've seen the launch of the iPhone, iPad and a dizzying assault of Android devices like the Nexus 7, Samsung Galaxy SIII and recently Nvidia's Project Shield.

All these devices are capable of providing consumers with a pretty decent gaming experience.  Though Nintendo's CEO Satoru Iwata has often derided mobile games as degrading the gaming industry and cheapening gaming altogether, mobile games are on track to generate over $11 billion in revenue by 2014 according to gamesindustryblog.com.

So where does Nintendo go from here?

Nintendo has been written off many times over the past few decades. Each time the company has re-invented itself.  Personally, I'm not betting against them.  They have fantastic IP, great games and solid hardware.  But to me it's clear they can't continue to be successful while trying to do all these things and more.

Nintendo has already taken the first meaningful step:  to consolidate its handheld and console divisions.  But I think the other two steps they must take will be much harder on the company philosophically:

1.    They need to embrace mobile and make their great games available on other platforms such as Android and IOS.  The reality is this is where consumers, particularly casual gamers, are spending a lot of time.  Not embracing this platform means potentially loosing a whole generation of new gamers recently coming of age.  The key to building and sustaining great brands is distribution:  if Mario, Zelda and Pokemon aren't available to IOS / Android gamers there is no guarantee - especially given the current generation of hardware - that these gamers will ever embrace Nintendo's titles

2.  Abandon their own proprietary OS for their devices in favor of an open standard that is current and will not drain the company of much needed resources it needs to be successful on HW and games.  Nobody is saying Nintendo's own software is bad but it's not cutting edge either.  With Android, IOS, Windows Phone and other OS's receiving at least yearly upgrades, Nintendo needs a cutting edge platform to stay relevant.  This isn't just about games:  it's about the complete experience consumers now expect on their devices (email, social, search, games, movies, music...)

What do I think Nintendo will do?

If I take out my crystal ball and peer into the future I don't think the company will make any bold decisions in the next two quarters.  That said if the Wii-U begins to loose steam quickly and requires an early price cut  the company may be left with little choice.  With Nvidia's decision at CES to enter the handheld space - using a device powered by Android 4.2 no less - Nintendo faces direct challenges on all fronts.  By E3, Nintendo's competitors will likely make announcements of their own and given Microsoft and Sony's obvious leanings I think it's fair to say we'll see significant features that enhance their console offerings by tying them closely to mobile.

Life is certainly going to get harder for Nintendo before it gets better.  Than again, Mario's creators have always found a way to change his look and make him contemporary and relevant.  Maybe he just needs a new wardrobe...