Saturday, 2 February 2013

Nintendo's Grim Future

I started writing this after finishing my exams in final year of uni, so it draws a lot from Management theory on strategy and innovation. It's weird how so many terms here don't get used in the real world, but I think this demonstrates more heavily how out of touch academics can be, rather than vice versa.

I have grown up with Nintendo franchises my whole life, and even as I have aged and matured over the past few years, I have never been tempted to invest in PlayStations or XBoxes in order to play crap like FIFA or COD. Give me Mario; give me Zelda; give me Smash Bros instead. So it was with a hopeful eye that I watched the release of the Wii U. But like many, I am disappointed.

First, the culture problem

The manufacture of a gaming console is fundamentally a platform strategy, but it is particularly more so for Sony and Microsoft than Nintendo. Platform strategies succeed when they scale quickly, and lock in users with network effects and dominant designs. In essence, this refers to things such as XBox Live - a network that the user accepts as standard and does not prefer to adopt a new one. In order for these strategies to become strong in the market, the platform has to achieve a great deal of scale in the market, and the greater the scale, the greater the foothold. PlayStation 2 owners will relate to the high switching costs of jumping to XBox, since the PS3 was backwards compatible with all those games you already own. But to scale to something the size of the PS2, a platform has to nurture an environment that attracts developers and users. The more users, the more developers (since their potential market is bigger), the more games, the more users...

But for Nintendo, their biggest and most significant developer has always been themselves.

This is the observed problem. This is a problem because it feeds from the Nintendo culture. While the Wii was able to radically disrupt the video game market, the cultural tendency to alienate other developers perpetually fragments the overall strategy. Nintendo will continually fail to satisfy the demands of its 'hardcore' gamers (I hate that term) if it does not find a better way to scale it's platforms, and attract powerful developers to make powerful games.

Culture can be a very challenging thing to change. When things go wrong, the first thing comanies do is fix the execution, then they try strategy and finally some might consider fundamentally turning the wheel on the very paradigm lens that the organisation views the world through. Nintendo did this remarkably when launching the Wii. But the Wii U is merely logical incrementalism, and not a true response to the critical gamers that will make decisions over the next two years.

Second, the environment

The market is far more social these days. Intenet gaming is a massive source of revenue for Microsoft, and the free subscription is a valuable competitive advantage for the Playstation Network. Moreover, Facebook, Twitter, Google+ and other social networking sites have grown dramatically in the last few years, and developed powerful social integration tools including games, voice calls, and video chat. Social interaction is at the core of gaming now, and it has moved from the three friends sitting next to you, to the 200+ friends you have all around the world.

Technology is not a spec game. While videogames used to be a power war, this method of differentiation is slowly being abandoned by all players, and this trend preceeds the Wii. The problem is that consumers now expect technology to improve, and if it does not, the new system forgoes an important threshold capability.

The Solution

It's time for Nintendo to focus. Since they started out in games, Nintendo have nailed both hardware and software, but those days are over. Software is now the companies home turf. The technology in hardware is best left to Apple, Samsung and Sony. They need to start developing for Android and iOS, and maybe consider Mac and PC.

They could do it. There's no reason Nintendo couldn't execute extremely high quality content on mobile devices. Their expertise in handheld gaming would allow for rich and powerful handheld games. Much bigger markets exist on these platforms than the one's Nintendo will have to build by launching another DS or Wii. Social integration is already built in too with links like Facebook Connect and Game Center.

Then there's the television. It's a tricky one for everyone to figure out, although Apple giving it a go (as the strong rumors suggest) might change things dramatically. Even if this doesn't happen however, we are on the eve of an emerging Android Game Console market that Nintendo may as well prepare for.

I believe Nintendo treads it's current path over the edge of a cliff, and it will be immensely difficult for it to stray from this and change it's culture. Everything happening in the industry today, including the dire Wii U, suggests that some time not too far off, innovative game design will lose an old and once wise leader.