January 3, 2013 - FILED UNDER Agile Business
Leveling Up: Can Nintendo’s Innovation Survive the Mobile Age?
Nintendo has been a video game industry leader for nearly three decades—a period that includes six generations of consoles, unforeseen advances in technology, and shifts in gamer demographics and preferences. The company has sustained success through innovation, lateral thinking, and a propensity for disruption. With every new technological wave, Nintendo has transformed what existed and constructed what didn’t with an emphasis on accessibility and affordability.
But the Kyoto-based giant recently posted its first loss since establishing itself as a video game company—a development unimaginable only a few years ago. Nintendo’s brand is still strong, but the company no longer has a monopoly on popular games. In fact, the Halo and Grand Theft Auto series have arguably eclipsed anything Nintendo has released in the past decade, not only in sales but cultural reach as well. And the success of Angry Birds and Temple Run suggest that Nintendo’s true rivals may be smartphones, not consoles or even handheld gaming units.
With the recent release of the Wii U, Nintendo is trying to reinvent video games once again by bridging the gap between mobile and console gaming. The company still has two comparative advantages over its competitors: a strong brand anchored around beloved franchises, and a reputation for quality software and innovative hardware. But a number of other critical variables may undermine the company’s latest attempt at disruption.
Playing With Power: Nintendo’s Brand Advantage
Nintendo’s biggest advantage over would-be rivals has always been branding. The company’s stable of heroes (and villains!) nearly rivals Disney and Marvel’s in popularity. Mario became more recognizable to American children than Mickey Mouse in the 1990s, and remains the most popular character in gaming today. Mario and Link (of the Zelda series) are ranked number one and two in Guinness’s ranking of the best video game characters of all time, and are joined on that list by Donkey Kong, Yoshi, and Samus Aran. The company’s roster is even more impressive when you factor in the entire Pokémon franchise, which is affiliated with and owned by Nintendo.
Nintendo also goes to great lengths to preserve its “family-friendly” image. In the early nineties, the company “cleaned up” third-party games by replacing references to alcohol, editing out swastikas and crosses, and covering up exposed breasts on statues. Nintendo’s controversy-free image has been a net gain for company, allowing it to escape criticism about video game violence and expand their audience outside of the traditional gaming demographic.
Analysis: The company’s roster of recognizable characters is a clear benefit, but Nintendo has struggled as of late to translate soaring Q scores into profit. Nintendo is still popular with large audiences, but less so with the most important one—hardcore gamers, who have flocked to Microsoft and Sony’s machines. Nintendo’s predicament today mirrors Disney’s dilemma in the late 1970s and early 1980s, when the company appeared rudderless after the passing of Walt Disney and unsure how to properly connect with the growing teenage demographic.
For three decades, Nintendo’s software has been accessible exclusively through its innovative hardware, which is why The New York Times recently described the company as the “Apple of video games.” Every iteration of the Nintendo gaming console has featured a creative design and unique accessories. Many of the company’s innovations (including the directional control pad and rumble function) have now become industry standards. Even its conspicuous failures—such as the Virtual Boy—were treated as learning experiences, and retuned for later software (Mario Tennis) and hardware (3DS) developments.
Yet Nintendo’s innovations have always been geared towards game play, not (strictly) technical capacity. Nintendo’s greatest hardware success had been the Game Boy, which brought handheld gaming to the masses at a reasonable price—and eventually became the most successful video game system of all time. Rival handheld units from Sega and Atari offered color screens and faster processing, but couldn’t compete with Nintendo’s third-party support and the popularity of its Mario and Zelda franchises (not to mention Tetris, the addicting puzzle game which came bundled with the system.) The success of the Game Boy seemed to prove that it was games, not hardware, that won over audiences.
The original Wii also seemed to represent the triumph of game play and innovation over hardware specs. When the console debuted in 2006, Nintendo had fallen behind its competitors in both units sold and gaming cachet. The Playstation 3 and XBox 360 both offered technical firepower that Nintendo couldn’t possibly match, so the company took a different approach with the highly interactive and relatively inexpensive Wii, hoping to draw in a broader audience including women and older gamers. The strategy was an initial success. Nintendo moved 97 million Wiis worldwide and became the best-selling console of its generation. But the system’s novelty soon wore off, and both third-party developers and hardcore gamers moved on—which is why some gaming bloggers refer to the Wii as “the most successful failure ever.”
Analysis: The Wii U, which debuted in the US in November, represents the company’s last, best chance to reclaim its top spot in the gaming hierarchy. The console has many innovative features, include a tablet-style controller that supports two-screen gaming and a TVii service that allows the system to be used as a central hub for your cable, DVR, and streaming services. And early sales have been strong despite a $300+ price tag. But reviews haven’t been as kind: CNET declared that the lack of compelling software and the console’s overall unpolished user experience makes it tough to recommend. Other critics noted that the U feels “less otherworldly” than the original Wii and more “bound to existing technology.”
Although a bitter pill to swallow, Nintendo would seem well-served by expanding the reach of its popular franchises beyond its own hardware. The company’s investorsapparently feel the same way. There are far more gamers on smartphones than there are on consoles, which now represent just 40 percent of the video game market—down from 80 percent in 2000. The Wii U’s tablet controller is very impressive, but it will simply never replace the iPhone or Android as a default mobile device.
However, Nintendo needn’t follow erstwhile rival Sega in getting out of the hardware industry altogether. Developing “casual” games for smartphones and other mobile devices would allow the company more profit margin to focus on developing technologically sophisticated games for its consoles. A Zelda iPhone app could serve to attract a larger audience for the next console edition of the game. Such a move could be the company’s most successful disruption to date.