Sunday, 20 January 2013

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

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...