How Nintendo Could Succeed Through Brand Extension

Nintendo just needs to have its business guys pelted by gamma rays...

Since Nintendo's been going through its rough patch lately, investors and analysts have been weighing in with advice. One of the most frequent pieces of advice is that Nintendo should make games for smartphones (Android and iOS). If this advice is given in any sort of forum where fans can comment, they immediately pile on. Nintendo fans hate smartphones, it seems, and they certainly don't want to see Nintendo making Mario games for iPhones.

Aside from the visceral reaction of Nintendo's most loyal fans, there is a good reason why Nintendo shouldn't make games for hardware that they don't sell. Platform exclusives sell hardware, and Nintendo traditionally makes money from hardware sales (and a lot of money from software sales, of course). If you could get the latest Mario or Zelda game on any platform, you'd be less likely to buy the game on Nintendo's hardware. So Nintendo might gain some added software revenue, but they'd lose hardware revenue... and other potential software sales that come from locking someone into to their hardware.

Aside from the hardest core fans, most people only have one game console, or one handheld gaming console. So this idea of hardware lock-in certainly makes sense. But it does rely on some hidden assumptions that reveal a possible strategy for Nintendo.

The hidden assumption is that Nintendo would put out the identical game on its own hardware and on other hardware. Sure, a game for the Wii or Wii U could be ported to look exactly the same on an Xbox 360 or a PS3. But it doesn't have too... and that's the point that's even more clear when we're talking about smartphones.

Smartphone games are slammed by console gamers for being lightweight; they don't have the depth or the fine control console gamers are used to getting in a game. True enough, and it's an obvious consequence of the lack of gaming controls (buttons and joysticks) on a smartphone, and the smartphone's role as a general purpose device (where you need to be able to switch to a phone call at any moment).

Suppose Nintendo decided to put out some smartphone games not as a replacement for a 3DS game, but as a way to introduce iconic Nintendo characters to new customers. The game play would be similar, but not identical, and the game's design would be simpler (at least the controls would have to be). Such games would serve to make some money (not much, at the price of smartphone games) and, more importantly, introduce Nintendo characters to customers who may not be aware of them. Properly crafted marketing campaigns would encourage those smartphone gamers to try out the richer experiences available on a 3DS or a Wii or a Wii U. You could even get special content on your Wii U game because you played a Nintendo game on a smartphone.

Imagine, if you will, a regular series of Nintendo games on smartphones creating a groundswell of interest in Mario and Link and Pokemon. Engage those customers further with social games on Facebook and Google+, with plenty of nice virtual items you could buy. Imagine a Pokemon game on Facebook where you could customize your training and battlegrounds. Or an Animal Crossing game, or Pikmin... and all of those could be designed to lead people into the deeper, richer game experience that Nintendo would have waiting for them on their proprietary hardware.

Of course, future games on Nintendo hardware could easily send out social messages to let your friends know about your successes in the games, and encourage them to help you out. Nintendo could connect their iconic characters across social and mobile gaming, and engage a much larger audience. They'd make good money from those efforts, too, with nice high profit margins, while promoting the games on their hardware. This is good old-fashioned brand extension; leveraging the power of your brands by taking them into new areas. If these games don't duplicate your games on proprietary hardware, there should be no downside risk. Unless you think that people would try Mario out on a smartphone and then, because of that, never buy a Mario game on a Wii U. That seems dubious, unless the game is really bad... which Nintendo should be able to avoid easily.

This doesn't even touch on the possibilities of taking old Nintendo games and putting them on smartphones. Nintendo could grab a whole new generation of gamers with games their parents enjoyed. Of course, Nintendo has had those available on their Virtual Console, but that's not easy for people to access. Also, Nintendo has never tried to optimize their revenue from old games, just charging $5 for each one as if the price was set in stone for some reason. They seem to be oblivious to the possibility that they could make for more money if the reduced the price; perhaps they could sell 10x as many games at $2 as they could at $5. Maybe not... but they'll never know unless they try the experiment.

Nintendo still has great potential for success; they just have to be as innovative in their business models as they have been with their hardware designs. Get some fresh blood in their design department, and in the business department, Nintendo. You could still rocket back to the top, but time's a-wasting. You need to make sure the 3DS starts selling well, and you really, really need to make sure the Wii U sells well from the start.