The Death Of Nintendo Has Been Greatly Under-Exaggerated

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I love Nintendo. I love Nintendo. I love Nintendo.

I feel the need to say that over and over again to begin with because this post will inevitably be read by some as some sort of anti-Nintendo screed. I know that because every single time I write anything mildly critical of Nintendo, groups of folks reveal themselves that make Android and iPhone diehards look like placid hippies. Those people are really going to hate this post.

But it needs to be written. Both because I do love Nintendo and because if they don’t change course — and fast — I’m ultimately going to be proven right. I wasted so much breath blowing on Nintendo cartridges as a kid, so now it’s time to waste some breath trying to jolt them out of the death spiral they now find themselves in.

And make no mistake, they are in the beginning of a death spiral.

“Nintendo is fine!” “They’re profitable!” The rhetoric out of the Nintendo apologists camp is as worrisome as it is predictable. See: Nokia and BlackBerry (né RIM) as prime recent examples of the problems with this mentality. See any number of companies throughout the history of ever for others. You’re profitable and a healthy business until you’re not. The mistake often made is to think that dramatic shifts in business can’t happen quickly. They can happen very quickly. And Nintendo is in a market that is experiencing such a shift.

As anticipated by some (cough cough), the Wii U is a dud. It’s actually much worse than a dud. As of right now, it’s a colossal failure. Maybe some key holiday releases alleviate the issue. But the fact is that it’s a poor concept accentuated by poor hardware. If Nintendo was smart, they’d write it off right now.

But they won’t. They’ll wait. And wait. And wait. They’ll cite history as their guide that their consoles can take a while to become profitable. But they’ll be wrong this time.

Meanwhile, the Nintendo 2DS will come out and will probably sell quite well at first thanks to a well-timed Pokemon release. But all the 2DS really is is an admission that the 3DS is ultimately a failure.

“But! But! But! Profitable!” Sure, a few years after release. Nintendo isn’t releasing the 2DS just for the hell of it. They realize the metrics that really matter: that the 3DS is tracking roughly 20 percent behind its predecessor in terms of sales. That’s not only not a good trend, it’s a devastating one (after a few early price cuts, to boot). A couple more of those and we have a company on the brink.

“But! Long-term thinking!” The concept of “long-term thinking” is what people always cite when something is failing right now. The issue here is that, again, Nintendo doesn’t actually have a lot of time to fix what ails them. Sure, no one likes the knee-jerk reaction, the quick fix. But sitting around and “waiting it out” is far worse in this case.

“But! But! Cash hoard!” Oh. Right. You know who else has a cash hoard? BlackBerry. It’s doing them a lot of good right now. It will help with their sale price, that’s about it. In other news, Steve Ballmer was sitting on his cash hoard when he was kicked out the door…

The excuses go on. The key here is that Nintendo is on the path of failure for a couple very simple reasons:

  • They have failed to make great products for a number of years now.
  • The market is rapidly changing around them.

It’s hard to say which is worse. I’ll go with number two because I do think Nintendo could weather number one — as they have in the past — for quite a long time.

Nintendo no longer is just competing with the others in their direct space — meaning gaming consoles and handhelds — meaning Sony and Microsoft. They are competing with every single smartphone and tablet currently on the market. And soon, they’ll likely be competing with a number of other set-top boxes as well entering the gaming space.

Nintendo’s greatest weakness is the illusion (bolstered by years of reality) that they have years to figure out their competition and outlast them. They do not. Apple and all the various Android OEMs release new hardware every single year — if not more often. This will ultimately end the successful runs of Sony and Microsoft in the gaming space as well, unless they change course.

For years now, Nintendo’s lone bright-spot has been handhelds. The DS was insanely popular. But the world has changed. Now the DS, the 3DS, and the 2DS are just another device a kid has to carry around (and that parents have to buy). Why do that when your smartphone plays games?

“Because those games suck.” Maybe. But they’re quickly getting better. And they’re far, far, far cheaper (both to make and to buy). And far, far, far more ubiquitous. As Benchmark Capital partner (and longtime video game executive) Mitch Lasky recently noted to Dean Takahashi:

To quote my six year old daughter, barely looking up from her iPad: ‘What’s a Nintendo?'”

There is no question that Nintendo’s strength is in its IP — its games. But that strength is being over-emphasized by those — like me — who grew up playing those amazing Nintendo games. Mario. Link. Donkey Kong. Icarus. Samus. The list goes on and on. But unless those characters are constantly updated in tales on relevant consoles, they will fade. It’s sad, but true. “What’s a Nintendo?”

That’s why we keep hearing the calls for Nintendo to make games for iOS. It’s the OS behind at least three relevant gaming machines: iPhone, iPad, iPod touch (and soon, Apple TV as well?). The immediate reaction from the Nintendo crowd is that this is blasphemy, the equivalent of saying that Apple should license its software to third-parties.

Imagine this possibility: it’s a totally different situation.

As John Gruber wrote recently:

Also, Mathis’s analogy to 1990s Microsoft analysts seems inapt. He’s correct that it was common advice then for Apple to do what Microsoft was doing: license their operating system rather than make their own hardware. Microsoft is the most successful company in the industry, therefore Apple should do what Microsoft does and just license software to commodity hardware makers. But if we applied that line of thinking to Apple analysts giving advice to Nintendo today, would not the advice be for Nintendo to stay the course? Apple is the most successful company in the industry, therefore Nintendo should continue doing what Apple does by making its own hardware and software.

The advice isn’t the same because nothing is the same. It’s a sexy and seemingly straight-forward connection to make, but it’s deceiving. And by the way, Apple didn’t get to where it is today because of the Mac or their Mac OSes. It’s because of the iPod, the iPhone, and iPad.

Which is really the key for Nintendo too. On their current trajectory, I think that Nintendo will end up releasing games on smartphones. But I fear it will be more in the mold of Sega, when it’s already out of the game, so to speak. The only way Nintendo really thrives — and I agree with the Nintendo diehards here — is if they pull off something truly special.

Nintendo needs to make a case for why stand-alone gaming should still exist. I’m not sure this is possible, mind you. But I think this is the only way they exit our current era as a leader, rather than a has-been. The Wii seemed close, but ultimately turned out to be pretty much the definition of a fad. Still, that thinking-outside-the-box allowed them to — albeit briefly — surpass both Sony and Microsoft.

The Wii U is not thinking-outside-the-box. It’s trying to shove their IP into a box. It seems like they took one look at the touch-based landscape and figured they had to make a move. The issue here is that their product is so inferior to the products made by Apple and others that it’s just sort of sad. Nintendo not only swung for the fences with this product, they called their shot beforehand, swung-and-missed, and spun around and fell on their asses. Total disaster.

Nintendo needs to get back to the NES and SNES era. Hell, even N64 would do. They need to lead by being actually ahead in the gaming space, not by pretending they are because of their first-rate IP.

Unfortunately, I’m not sure that’s possible. Again, the competition is no longer just other console makers on their five, six, or seven year cycles. It’s Apple and Samsung with one year — or six month — cycles. It’s a whole new world.

So how does Nintendo compete in that world? I wish I knew. My best advice is to team up with a current tablet/smartphone manufacturer and make the best — and I do mean the best — hardware for gaming. Speed. Buttons. Responsiveness. Definition. Clarity. Etc. Ideally, they’d do this themselves, of course, but I no longer have faith in Nintendo being able to compete in this new era of hardware.

Maybe it works, maybe it doesn’t — again, are kids going to carry around two devices? Or, even better, Nintendo needs to come up with something that neither I, nor anyone else reading this, could possibly come up with. The next wave of gaming. Think more: Oculus Rift. (Side note: immediate thought of Virtual Boy — the horror, the horror.)

Or they need to sell to Apple. I still believe Nintendo could thrive as a game studio allowed to run independently under a larger parent — think: Pixar inside of Disney. (Remember that Pixar once thought it had to make hardware too!) If Apple wants software to move hardware, it’s hard to imagine a better buy. And it would allow them to use a nice chunk of their overseas cash hoard to boot!

Yeah, yeah: “Nintendo will never sell.” “Never” has a funny way of morphing into “not yet” in certain situations — see: the point of this post.

All I know is that Nintendo’s current trajectory is one towards failure. The diehards refuse to believe it because they seem to mistake the company’s stubbornness for steadfastness. “Just you wait,” they say. Meanwhile, those diehard Nokia and BlackBerry supporters are still waiting.

Others seem to believe that the company has an Apple-like comeback in them in this new era of gaming. We all forget just how rare such a comeback actually is because we all just watched it happen.

Nintendo isn’t just failing because their hardware is sub-par. They’re failing because they continue to try to re-tool the Model T while the competition is building Ferraris. Meanwhile, those they don’t yet perceive as competition are building Teslas. And others still are out there building rocketships. All the while, Nintendo is sleeping at night on their pillow of profits dreaming like Mario at the end of Super Mario Brothers 2.

This all adds up to a rude awakening. And — mark my words — it will happen.

The earliest memories I have of any electronics is of my first Nintendo. And that has made watching the company these past few years all the more frustrating. Even more frustrating than blowing on those old NES cartridges.

[image via Kotaku]