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Tuesday, March 15, 2011

Is The Wii A Dead Console?

It's a good question. Although Nintendo seems to think that the release of a Wii in a new color constitutes a major hardware update, consumers don't seem quite as convinced -- nor do analysts. The above chart shows the Wii's market share, which reached its high point in 2008. It started to drift down in 2009, and 2010 saw a steep decline. Early figures from 2011 show more of the same, as the 360 continues to lead the sales charts while the PS3 battles Nintendo for second place. And this is despite the Wii's $100 price advantage... when you factor that out things look quite grim indeed. Unit sales of the Wii fell by 24% in 2010, which should have set alarm bells ringing.

Nintendo seems to be focused on the 3DS launch, which is understandable. (It's not clear right now whether the tragedy in Japan will have any effect on Nintendo's hardware production ability... but I'd guess not.) Still, you'd think the strategy is fairly easy to discern. It's a simple two-step: Step 1 is to reduce the price on the Wii to $149 to goose the sales up and keep third-party developers on board. Step 2 is to introduce a new console. If it's going to take longer than this holiday season to introduce the new console, you may have to repeat Step 1 a few times.

So far Nintendo has been reluctant indeed to reduce their hardware price. It would certainly seem like the time, with sales dropping at a rate of 25% a year or so. Why wait until the 360 reduces its price and makes things more difficult for you? I really don't know why Nintendo hasn't done this; their hardware production costs should be nice and low by now, having had years to cost-reduce the hardware.

Meanwhile, there's been nothing rumored at all about a new version of the Wii. Sure, people have made up wish lists, but it's clear no developers have their mitts on one yet. Speculation ranges from a very minor upgrade (HD output, faster processor) to a full blown new console (new graphics chip, new processor, perhaps some new interface capabilities). I would argue that Nintendo should not go for the high-powered end, but instead should try to have a low retail price with HD output and some interesting capabilities. Why? Because Sony and Microsoft are certainly already competing on horsepower, and they look to continue to do that. Nintendo should stay out of that fight, like they did with the Wii. Besides, with the looming threat of Apple TV and Google TV, the low end is going to be busy. And Apple TV and Google TV are aimed squarely at Nintendo's game consumers. They will be putting out thousands of low-cost or free simple software titles that people can download instantly.

Nintendo's got a real threat to its continued existence here. Microsoft and Sony have the high end cornered, and Apple and Google will be aiming at Nintendo's market. Plus, Nintendo has shown disdain for the idea of online anything, and is only slowly beginning to grasp the idea of an online community, online sales, downloadable content and digital distribution, much less freemium.

I believe Nintendo will announce a successor to the Wii at E3. If they don't, I expect they'll be leaving the home console business... willingly or otherwise.

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