More Nintendo

Gruber responds to some of the feedback he's received about Nintendo's situation. He writes:

Nintendo is doing poorly because they seem incapable of producing best-of-breed hardware, both in console and handheld.

Nintendo's biggest success, the DS, was outdated by years the day it came out. For reference, it competed with the PlayStation Portable, which brought PS2-level graphics to portables. Meanwhile, the DS barely managed to produce 3D graphics at all.

The Wii, a success by any account, is the furthest Nintendo ever got from producing best-of-breed hardware. The Wii's chipset was outdated by half a decade when it came out, its motion controls barely worked, and the console had no real online system.

The Wii and the DS succeeded because Nintendo made machines that enabled interesting games, not because it made best-of-breed hardware.

The criticisms levelled against the DS and the Wii were exactly the same ones Gruber now levels against the current Nintendo consoles. But Nintendo is at its best when it doesn't try to compete with other devices on the market, and often at its worst when it does.¹ Nintendo is not competing on hardware. It's competing on entertainment value.

Put differently, Nintendo doesn't sell technology. Nintendo sells toys.

Here's an example of that. Gruber mentions the resistive touchscreens Nintendo uses as an example of where Nintendo's hardware falls short. It's true that Nintendo's touchscreens would be terrible on a mobile phone. But I think this is actually an example that illustrates how it can be to Nintendo's advantage that it doesn't have to compete with mobile phones. Nintendo's stylus-based resistive touchscreens enable interesting games and experiences that would work less well on a capacitive touchscreen. New Super Mario Bros. U, for example, is filled with handdrawn notes drawn by other players on their Wii U gamepads. Yes, you could do the same on a capacitive touchscreen, but drawing with a stylus works much better on a resistive screen, so Nintendo includes that feature in many of its games.

A touchscreen is better technology, but a resistive screen with a stylus might, in some cases, make for a better toy.²

The problem with the Wii U isn't that it's bad technology. It's that it is, in many ways, a bad toy.³

Gruber writes:

No one is arguing the 3DS hasn’t sold OK, but they’re certainly not great. They only look good compared to the Wii U, which appears to be a failed platform.

The 3DS is currently the 12th best-selling console of all times, after only three years on the market.

I'd turn this around: the 3DS sales only look bad compared to the DS, which is on track to becoming the best-selling console of all time. It's true that the 3DS is not on the same track. But I think it's unreasonable to expect every Nintendo console to be on track to becoming the best-selling console of all time.

Nintendo's story has never been one of continuous growth. It's been one of constant ups and downs. Look at this chart, which shows Nintendo's total console sales numbers:⁴

The GBA didn't beat the Game Boy. The SNES didn't beat the NES. What's going on with Nintendo today is nothing unusual. It's what's been happening ever since it started making videogame hardware.

I'm sure Nintendo wants the 3DS to sell better than the DS, and the Wii U to sell better than the Wii. Fortunately, Nintendo doesn't need every console to sell 120 million units. Nintendo is a small company. It only has 5000 employees. It doesn't need to be the number one videogame hardware maker to sustain itself.

And that brings me to one final company to compare Nintendo to: RIM.

If you buy an iPhone, you're not going to also buy a Blackberry.⁵ The same doesn't apply to videogame consoles.

This is not like RIM, where competition made BlackBerries obsolete. The Wii U isn't failing because of competition, or because there's no market for TV consoles.⁶ It's failing because it is a bad product.⁷ Nintendo, not Apple, and not anyone else, caused the Wii U to fail.

The way to fix this is to make a better toy, not to make games for Apple.

Make two great games for iOS (iPhone-only if necessary, but universal iPhone/iPad if it works with the concept). Not ports of existing 3DS or Wii games, but two brand new games designed from the ground up with iOS’s touchscreen, accelerometer, (cameras?), and lack of D-pad/action buttons in mind. (“Mario Kart Touch” would be my suggestion; I’d buy that sight unseen.) Put the same amount of effort into these games that Nintendo does for their Wii and 3DS games. When they’re ready, promote the hell out of them. Steal Steve Jobs’s angle and position them not as in any way giving up on their own platforms but as some much-needed ice water for people in hell. Sell them for $14.99 or maybe even $19.99.

Nintendo will release Mario Kart 8 for the Wii U at the end of this year. Despite of the Wii U selling poorly, I would be very surprised if Mario Kart 8 sold less than 5 million copies over the course of its life. Nintendo never discounts games much, so it'll make at least 30 bucks a game.⁸ That's 150 million US$.⁹

Nintendo would have to sell 15 million copies of a Mario Kart game at 15$¹⁰ on iOS to make the same amount of money, and they'd end up devaluing the Mario Kart brand.¹¹ I just don't see how this could possibly work, or be a good idea.

Here's what I think the most likely scenario is for this console generation: the 3DS will continue selling well, though not at DS levels. The Wii U won't, but will get some good games (mostly from Nintendo), and eventually sell about as well as the Gamecube. Meanwhile, as hardware prices fall, the installed base of its consoles goes up, and more first-party games are released, Nintendo's profits will increase gradually. Nintendo won't go out of business, nothing spectacular will happen, the world won't end.

If Nintendo releases any iOS apps, it'll be more Pokémon stuff.

Most of this whole discussion is based on the expectation that Nintendo will continue (and must continue) being as dominant as it was during the Wii/DS years. But these years were a fluke. Nintendo never did that well before, and possibly won't do that well again. Fortunately, it doesn't have to.

Further Reading

Matt Leatherbarrow:

Nintendo is not a tech company. It is a toy company who use technology to make their toys work.

Rob Fahey:

Nintendo has a long-term outlook that's quite unusual in the games business. It does not answer to shareholders and investors to the same extent that other games companies must, thanks to a combination of large shareholdings by individuals and organisations connected to senior management or to the Yamauchi family, and general passivity on the part of Japanese institutional investors. It is sitting on an enormous pile of cash, easily enough to fund years of loss-making activities, or indeed the launch of an entire new console platform. It could launch new platforms several times over before the accountants started breaking a sweat, in fact, which sets Nintendo apart from much of the rest of the industry - and crucially, makes it into a very different proposition from early 2000s SEGA, for whom the Dreamcast truly was the last roll of the dice.

(...)

Few people in the games business would call the N64 or the GameCube a success story, yet from Nintendo's point of view, both consoles made enormous amounts of money and helped to launch or cement the reputation of some of the company's most beloved and enduring games. Would Nintendo like to sell over 100 million units of the Wii U, as it has with the Wii? Of course it would. Will it throw up its hands in abject despair if it only sells 30 million units? Absolutely not. 30 million units with a great tie ratio is still a hugely profitable console - and while the markets may abhor the notion of a company's market share declining in this way, Nintendo is far less in thrall to stock price than most companies in this industry.

Via Johann Visagie, who also recommends this article on the 2DS and this article on Nintendo and smartphones.

Update

Gruber responds. Some more thoughts from me.

Asymco notes that videogame sales are currently going down. This isn't that surprising, because we're at the tail end of a console generation. They write:

The chief criticism to the industry-wide view of decline is that there is a new generation of consoles right around the corner. This is the eighth generation of consoles which, it is presumed, will bring growth back to the industry.

But the Nintendo 3DS, launched two years ago was meant to kick off the eighth generation, and the PlayStation Vita was Sony’s response. Then the Wii U was also billed as the successor to the Wii. They have so far failed to re-ignite growth. One might reply that they were merely appetizers and that the main course of the next gen are the PS4 and Xbox One.

Will they create growth again? Surely not for Nintendo, but I would argue that not for Sony and Microsoft either.

I think it's problematic to extrapolate from the Wii U to other consoles, because the Wii U is a highly flawed piece of hardware (it's a bit like proclaiming the PS2 a failure before it's even released, just because the Dreamcast isn't selling well). And while the peak of console sales coincides with the beginning of the "post-PC" era, it also just happens to coincide with the first price decreases of the last console generation, which seems to me like a more probable reason for the sales peak.

At any rate, we will see quite soon how this all turns out.