Nintendo In Crisis

The DS as a shopping tool? I don't buy it.

Nintendo is in an interesting position these days... as in the old Chinese curse, "may you live in interesting times." Their flagship product, the Wii, was declared the early winner of the latest console generation as it handily outsold the XBox 360 and the PS3. Publishers were scrambling to shift development dollars away from PS3 and XBox 360 titles to the Wii. That was then... and now, Wii sales have fallen 45% from last year and is being beaten handily by XBox 360 and PS3, thanks to their new low prices. Worse, publishers found that the attach rate (the rate at which console owners bought software) was far lower for the Wii than for the other platforms. Sure, Nintendo could sell a new Zelda or Mario title for the Wii, but sales of anything else were disappointing despite the large installed base of Wii. The installed base doesn't help publishers if they don't buy software.

Well, that's OK, because Nintendo still has the best-selling DS line. Well, it was best-selling... this year sales are down 25%, with both hardware and software taking a hit. The introduction of the DSi XL was undercut by Nintendo's announcement of the 3DS. An amazing blunder, or perhaps it was just that Nintendo realized a larger DS was not going to solve the sales problem, they needed some new technology. So they stepped on the product they had just announced.

Now we're looking at a very bleak holiday season for Nintendo. No new Wii on the horizon; no price cuts; no killer software for Christmas. The DS line has slowed to a crawl as the 3DS is announced for March. What's the big N going to do?

There is an interesting twist; a patent application they have in the works that details how you could use the DS as a shopping tool, assuming the store had information on products stored in a wireless network in the right format. On the positive side, it shows Nintendo is thinking about the DS as more than just a game-playing device. On the negative side... it's pretty lame compared to what you can already do with a smartphone by reading UPCs and comparing prices to other vendors.

Nintendo is hoping the 3DS sells big; they are so confident they are charging a premium price (and possibly raising software prices as well). Even assuming they are right, though, this does not help the Wii. The answer to that one is really pretty simple: Drop the price to $99. And do it before Christmas. Meanwhile, crank up the engineering on a new console, whatever you decide to call it. More horsepower would be nice (and relatively inexpensive), but it really needs some new gimmick. Sony and Microsoft have now copied the Wii's gestural interface, and improved on it considerably (in two different ways). Can Nintendo think of something new?

Really, though, the answer doesn't require hardware innovation; they need business model innovation. Look at what's driving the success of iOS and Android; it's their huge market of Apps, with an amazing variety of uses at low prices. Nintendo could create such a market, and even integrate it between the DS and the family room console, giving you an additional reason to use the handheld device as an optional controller for the family room console. All it requires is that Nintendo completely upend the way they do business now and reinvent their approach to online connectivity, throw open the doors to developers and make the tools easy and inexpensive, and make the approval process transparent and so swift it only takes a day or two.

You may doubt that Nintendo can reinvent themselves so completely. Well, they were once a company that produced playing cards... there's been a few changes since then. It's possible, especially if their sales don't recover as much as they hope.

Still, my guess is that Nintendo will not do anything so dramatic. They tend to be conservative. Perhaps the Wii may see a price drop next year, but probably only to $149. They will hope the 3DS reignites the DS line; the real effects won't be known until some months after the introduction, when sales settle into a predictable level. (Though, thanks to NPD hiding the numbers, we may not really know whether that's happening or not.)

Marketers need to predict where the market is going in order to guide their planning. It looks to me like the momentum is heading away from Nintendo.