Product Naming Case Study: The 3DS

Naming products is a difficult process. An ideal name is short, memorable, an undisputable trademark, has no easy way to mock it, doesn't mean something bad in common languages, and it embodies the key features and positioning of the product. It's an extraordinarily difficult feat to achieve all of those goals, and correspondingly rare. Usually names fall short, sometimes far short, of more than one of those points. Even less-than-stellar product names can take many hours of work to create and approve.

One aspect of of product naming is that a product name can also turn into a negative factor, sometimes merely by chance. Usually this happens when you move a product to a foreign country and find the product name doesn't work. A classic example is GM trying to sell the Chevy Nova in Latin America, but "no va" in Spanish means "it doesn't go", which is a less than useful association for a car.

Nintendo's most recent hardware has had some interesting names. Back in the early days, they stuck to pretty straightforward names that were easy to remember and obviously had no trademark problems: The Nintendo Entertainment System (NES). The Super Nintendo Entertainment System. The Nintendo 64. All had the company name as part of the product name, so it was clear what company was making it. These products reinforced the meaning of Nintendo as a key gaming brand. Although the N64 didn't really say it was a game machine, by this time the word Nintendo was so strongly associated with gaming the point was made.

Next up was the GameCube, which was descriptive to a fault. It really wasn't an exciting or evocative name, and didn't point to any product benefits. Yet Nintendo's brand by this time was plenty strong enough to compensate. Subsequently, Nintendo choose to find a readily trademarkable name that had some unusual resonances: The Wii. This was probably the most radical name in Nintendo's history, and it attracted a great deal of commentary (much of it negative). Again, though, the power of Nintendo's brand carried the company past any negatives, and the best-selling hardware shut up detractors pretty quickly. After all, if it was selling like hotcakes who cared what they called it?

The Gameboy was a little bit odd for America, but the overwhelming success of the product eventually transcended the relatively weak name. (Weak because it really didn't point to any product benefits, and seemed a little off-putting to half the potential audience.) The Nintendo DS was a fairly obvious name to point to the device's main differentiation: the dual screens.

Now we come to the Nintendo 3DS. I'm sure that when Nintendo was working on the prototypes, and somebody said "What will we call it?" somebody quickly suggested "Nintendo 3DS!" Sure, the device has glasses-free 3D display, and it's basically an advanced version of the DS. At that time, too, 3D was making a resurgence. James Cameron's Avatar was setting box-office records, and the movie industry was making plans to have 3D in every theater, with every movie being in 3D, as a way to get people to come back to theaters to get something they couldn't get at home. (And, not incidentally, charge them a lot more.) Meanwhile, TV manufacturers realized they might have a way to get people to buy new TVs even though they might have just bought an HDTV in the last year or two. And game publishers, watching console game sales sinking, saw the possibility for a new technology that could revive game sales and be relatively easy to add on to existing consoles.

Nintendo was in desperate need of a sales boost, too. A new handheld device riding the wave of 3D enthusiasm seemed like the perfect answer. What better way to ensure that the device was associated with the 3D craze than to put 3D in the name?

The upside to the 3DS name seemed clear: The name clearly associates the device with 3D, and thus with the enthusiasm for 3D being generated by the movies, TV makers, and the game industry. So the 3DS name should help boost sales by some amount. Perhaps no one even mentioned the possible down side: What if 3D turned out to be just a fad? Or, worse, if 3D actually turned out to be a negative feature for customers? Then the name might be a drag on sales, reminding customers of a feature they don't like or don't care about, and making it seem like the device is all about that feature.

Of course, this is exactly what has happened. Satoru Iwata realized this early on, and noted in public statements that the device wasn't all about 3D and that you could have non-3D games on it. But if you leave your little 3D slider in the off position on the 3DS, you're left with a DS that is clunkier than a DS Lite and has about 1/3 the battery life. At least, it still has more horsepower, and when you're not using 3D the main screen is a fairly high resolution. The lower price tag is going to help significantly, too, by showing that you can get the extra features with paying a huge amount more than you would for DS.

I expect that a new version of the hardware is in the works, at least to make it less expensive to produce, and possibly to add a second analog control, improve the battery life, and maybe make it slimmer and lighter. This is a natural evolution that console maker inevitably work on (at least, the part about making the device cheaper to produce). I think Nintendo will be looking closely at possibly rebranding

This is a cautionary tale for marketers, though. Naming is a two-edged sword; think carefully before you hitch your product's success to single feature or a pop-culture craze. That may be OK if your product is only going to be on sale for a few months, but if you expect to be selling something for years you need to take a longer view. A blander name might not give you an initial sales boost, but it may also avoid a sales problem. Nintendo's done pretty well in the past with names that are not terribly exciting in and of themselves, but they let the quality of the product add value to the name. And some solid marketing spending, too. Marketers, take heed.

The Next Console Generation

If I saw this in my family room I'd figure the invasion had started.

Some analysts have started to say that we really need a new generation of consoles to turn around the sagging sales of the traditional game business. We're in the third straight year of a slump, and it's true that the current consoles are getting towards the end of the usual console lifespan, as the Xbox 360 hits its 6th year and the PS3 and the Wii in their 5th years. Previous generations of consoles have seen new generations introduced in around year 5 or 6, so by that reasoning we should be due for a new round of consoles.

Nintendo has already announced their next-generation console, the Wii U. Sony and Microsoft have said they are working on new technology, but have no plans to introduce new consoles right now. I'm sure they'll determine the proper time to ship a new console based on how well the Wii U does, and if sales of their current consoles start to slip significantly.

I don't think a new console generation in the traditional sense is the solution to the industry's problems. The usual "next-generation" console would have a significant increase in graphics power, and probably storage capacity and connectivity; a 5x to 10x jump in performance is something we've come to expect. Of course, that would mean substantially higher hardware prices, too. An "Xbox 720" or a "PS 4" would likely have to be priced in the neighborhood of $499 to $599 to offer a substantial jump in graphics. The Wii U is anticipated to be around the level of the Xbox 360 and the PS3, probably somewhat better, and the price tag will probably be in the range of $299 to $399, or maybe even more.

I think this is the wrong direction for console hardware. The sales figures should be telling us that customers thing games are priced too high already, which is why they're buying fewer of them (and buying a lot of used games). Higher resolution means higher development costs, too, and publishers are already seeing budgets that make it very difficult to turn a profit on most games.

The big threat to the current console generation is coming from tablets, smartphones, and connected TVs. They all share the same basic ARM technology at their core, which is very low-power and inexpensive. The smartphone/tablet/connected TV market is an order of magnitude or two larger than the console business, which by the inexorable laws of high-tech manufacturing means the console business won't be able to compete on price-performance. Look, an Apple TV is $99, and with the next generation of chips in it the Apple TV can outperform a Wii, graphically.

Microsoft and Sony, at least, have been working hard to build a compelling online experience and a big audience for Xbox Live and PSN. They should leverage that by expanding the variety of software available to their customers. Open up the development for your platforms, make it easier and cheaper to create titles or all types. Encourage more hardware add-ons. Make a new generation of your consoles, but focus on making them more flexible, extendable, and cheaper. Heck, switch over to ARM chips to get the same cost advantages as the smartphone folks. (Microsoft, you're in bed with Nokia... use their manufacturing expertise. Sony, you've got a deal with Ericsson...)

Microsoft and Sony have the advantage of an existing large audience and the market share and the branding. Don't wait around for Apple and Google to steal those things from you. Push your consoles down in price faster. You can make a more expensive, spiffier one if you really want to, but before you do make the $99 Xbox 360 or the $99 PS3. Make it easier to use network storage, cloud storage, or to plug in a USB hard drive or flash memory. Use your motion control to create a smooth interface to all different media. Microsoft, exploit that Windows Phone 7 connection. Sony, bring Android in to the PS3 and embrace that wholeheartedly. Imagine Sony being the first to bring the Android Market to the family room with games designed for the HDTV screen... they would dominate before Google even has a chance to get started.

Yes, I understand this requires throwing some cherished business models into the compost pile. Recycling those business models should provide a rich fertilizer for the growth of your new business models. If you wait to see whether the traditional new expensive console will fly, it will be too late.

Nintendo, you guys are so far behind Microsoft and Sony in embracing the new digital reality I don't know if you can catch up. You seem to have become aware that something is seriously wrong, which is good. You'll need to make a drastic move to catch up, let alone pull ahead. Start thinking big; call Apple and see if they want access to your brands. Cut a deal with Apple and gain all the manufacturing scale advantages Apple can offer. You can give their technology the very best gaming brands in existence. The combination would be very hard to beat, but it's going to require some daring, unconventional thinking and dealmaking.

I really don't know what's going to happen over the next few years, but if the traditional console makers stick to the traditional game plan, I think they're going to be in deep trouble. If they get creative, they could see a new era of growth. Grab some popcorn; it's gonna be a really good show.

Latest Nintendo Rumors: 3DS Lite?

If only we could see inside Nintendo this easily.

While we await the results of Nintendo's price-slashing experiment with the 3DS, some rumors (courtesy of Bloomberg Japan) have surfaced, claiming that Nintendo is planning a big announcement in September, perhaps prior to the Tokyo Game Show. Nintendo's stock has risen almost 10% in the last few days, which certainly might indicate that something is up. Adding fuel to the fire is this report on French gaming site 01net.com, which claims to have heard from a source inside Nintendo the following things:

1) Nintendo is planning an add-on second analog control for the 3DS, which would retail for about $10.

2) 3DS dev kits have about a 6-month backlog, so Nintendo is outsourcing the production in an attempt to get them out faster.

3) Nintendo, realizing that the whole 3D craze has flamed out, is planning to de-emphasize the 3D display, possibly even rebranding the 3DS.

4) Nintendo is planning a new 3DS for release next year... which would radically tone down the 3D aspect, a new design and possibly the new branding.

While Nintendo may be about to make a big announcement in September, I'm sure it wouldn't be about any new hardware. I seriously doubt they would want to do anything that might hurt holiday sales. I'd expect some announcement of additional marketing efforts, perhaps some free software pack-ins or downloads, and maybe an announcement of big marketing spending over the holidays. I think Nintendo will want to push the 3DS as hard as possible this holiday season (I'm already seeing new TV commercials pushing the lower price and the software titles coming soon), to maximize the sales.

Nintendo probably realizes just how dire the situation is for the 3DS. If they can't show strong sales over the holidays, with a radically lower price tag and with Zelda, Mario, Mario Kart and Starfox all hitting the stores, you can bet 3rd-party publishers will be spraining a finger pushing the abort button on current or planned 3DS development. If the 3rd-party publishers head for the PS Vita or smartphones (or both), the 3DS has almost no chance of being a big success.

I suspect Nintendo is hoping to demonstrate at least strong sales this holiday season, if not stellar sales. Then early next year they can keep publishers excited by telling them about the new version of the 3DS, where they fix all the perceived problems (make it smaller, lighter, longer battery life, 2nd analog control) and relegate the 3D feature to a minor role (since it doesn't seem to be a huge draw for customers; if anything, it might be keeping moms away from buying it over concern for their kid's eyesight).

Nintendo won't want to make any public announcement of a new version of the 3DS until just before it ships, or else sales would probably totally collapse. They might, however, want to float a few trial balloons in the rumorsphere, just to see what the response is among publishers and customers.

I think shifts in the hardware and the marketing emphasis might help, but the real problem is with Nintendo's business model. The problem of dev kits being back-ordered 6 months is a huge one for the future of the device. No dev kits, no development... which means fewer titles, which means less software to attract buyers. The fact that Nintendo still wants to charge about $4500 for a dev kit shows they still don't understand the value in having a lot of titles out there. (Microsoft charges $99 for an XNA sub to allow you to make Xbox indie games, for instance; Sony's charging $2700 for a PS Vita dev kit.) Nintendo really needs to open up development, and put some serious effort into digital distribution, if they want to have a chance.

I note that Sony recently stated that all PS Vita titles would be available through digital distribution as well as in retail stores. Which may not make GameStop all that happy, but it's certainly a plus for customers. Nintendo has yet to make any substantive moves in this direction; if anything they've said they aren't all that interested in online stuff.

This is all happening as excitement is building prior to Apple's introduction of a new iPhone model. Rather, two new models; a new one with a faster processor, bigger screen, and better camera, the usual yearly advancement everyone expects. The real winner, though, is the other iPhone that's looking more real: The iCloud iPhone, which is essentially a cost-reduced iPhone 4 with only 8 GB of flash storage that can use Apple's new iCloud service for streaming music and video. This may be so low cost as to be free with a 2-year contract with AT&T or Verizon. If that's true, we're talking an even greater threat to the 3DS and the PS Vita.

Yes, yes, I know smartphones don't play the deeper, richer games you find on consoles... yet. But everyone needs a phone, and when you leave the house you'll always carry that, for sure. If you have a smartphone that plays some pretty nice games (that are mostly free or only a couple of bucks), you will be much less inclined to drop hundreds of dollars on a dedicated gaming device where the games cost $40 apiece. You'll certainly be much less inclined to buy a dedicated handheld gaming device for your kids when you will really want to make sure they have a phone first. If a really cool smartphone is $0 when you sign a 2-year agreement... hey that sure looks attractive. No wonder handheld software sales having been dropping for the last 3 years straight.

And as smartphones become even more popular, and their graphic capabilities equal or exceed consoles, we'll see more of the key console hits coming to smartphones. I'm not surprised at all that Nintendo might be getting a little desperate. I just hope they start applying their talent for disruptive innovation to their business models, and not just their hardware designs.

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.

Nintendo Gets More Bad News

Is this what the 3DS is turning into... the return of the Virtual Boy?

When it rains, it pours, doesn't it? Nintendo's been having  quite the bad news week lately, and here's some more for them. A Japanese games site surveyed 6,500 Japanese gamers about the 3DS, and the responses aren't the best news for Nintendo.

Over 30% of those responding who had already bought the 3DS felt "anger or regret" about the price drop, and the 20 free games seemed to do little to assuage their feelings. Overall, 49.4% of the 3DS owners surveyed said that the current available games for the 3DS were not adequate, and they felt "disappointed" with the system even knowing about future titles. More tellingly, 45.7% said they were not interested in, or on the fence about buying either Super Mario 3D Land or Mario Kart 7.

Of those who don't own a 3DS, only 5.4% said they were planning on buying one after the price drop. Most of those who weren't interested (65%) said they were looking at a PS Vita.

The critical pieces of information here are that half of all 3DS owners are disappointed in their purchase, and that only about half are interested in buying key new 3DS titles. No wonder sales have been poor, if half of the owners bad-mouth the device to their friends. Contrast this with the iPhone owners, of whom 95% or so are satisfied with their purchase. This data shows that Nintendo's problems with the 3DS will not be solved by a price reduction, even as big as the one they just made. The problem also won't be solved by new software, since the owners don't seem particularly interested in the new titles.

The poor battery life, the clunky appearance, and the fact that  the main feature of the device that Nintendo pushed so heavily (3D) is a disappointing gimmick that makes your head hurt, those are the 3DS's real problems. Nintendo can (and probably already is) engineering their way around the battery issue and the size and clunkiness. The 3D issue... well, that can only be solved with some great software that shows how good the feature can be, and how it can actually cause some excellent gameplay. I'm not sure if that's even possible, but that's what Nintendo has to figure out if they want this thing to sell. Otherwise they may have to just kill it, and come out with a revised DS that uses the faster processor with a better, non-3D screen, all in a small form factor with a 15 hour battery life.

Though until Nintendo embraces digital distribution, and free-to-play, and social gaming, and inexpensive game titles, I'm not even sure those changes will do the trick. Dedicated devices just tend to disappear when something more powerful and flexible comes along. The smartphones continue to zoom ahead, and they may be the end of dedicated  handheld gaming devices despite Sony and Nintendo's best efforts.We'll see... and watch carefully during this holiday season. If the 3DS can't make a solid holiday showing, it may never be able to make it.

Nintendo: 3 Scenarios For The Future

Since Nintendo's dramatic announcement of massive losses and a huge price cut on the 3DS, there have been plenty of articles posted on the Internet about what this could mean. Some writers are predicting doom, others say Nintendo is just in a rough patch and they'll be fine soon enough. Comparisons to Nintendo's previous venture into 3D gaming, the Virtual Boy, have reared their ugly head. What exactly will happen depends on what choices Nintendo makes in the next year or so, as well as the ultimate attitude of consumers towards Nintendo's decisions.

In classic think-tank style, I present three scenarios for Nintendo's future. Which one will occur? None of them exactly as I have outlined, I'm sure. But elements of all have some degree of likelihood... See where your vision fits in.

Scenario #1: Nintendo Triumphant
Nintendo awakens to the huge changes in the gaming industry. The near-death experience that 3DS sales underwent in its first full quarter and the complete failure of their expectations for the hardware and software cause Nintendo to re-examine every facet of its business. The public admission of problems and the huge price cut on the 3DS turn out to be just the beginning of Nintendo's re-invention.

Nintendo quickly diverted resources to building out its online offerings, using a sleek interface and integrating social networking. (Allowing you to use your Facebook signon was a bold move.) They reworked their developer program to make it far easier and almost free to become a developer, and removed restrictions on what you could offer; a wide range of DLC soon appeared and sold briskly. Freemium games and social games were soon to be found on the Wii... and when Farmville hit the Wii, hardware sales zoomed. The holiday price cut to $99 accelerated the revitalization of the platform, especially with its new range of apps available for free or inexpensive prices.

The 3DS was a hit once the price cut took effect and the new developer program really took hold. The crowning achievement, though, was Nintendo's strategic alliance with Apple. Bringing iconic Nintendo characters to Apple hardware was genius. The inexpensive, easy to play titles brought a whole new audience to appreciate Nintendo characters, and they could then buy Nintendo hardware to play those characters in premium adventures. Online notifications of matchmaking and leaderboards through social networking sites and smartphones added to the excitement building around Nintendo's networking and burgeoning gaming community.

The integration between Nintendo's hardware and Apple's made the whole process seamless. The Wii U launched with the capability to use not only Nintendo's controller, but an iPad or an iPhone or a 3DS. That, plus the ability to now access the full iTunes product line on the Wii U, made the hardware a hit from the start. Its $299 price point and advanced graphics, along with the ability to add a hard drive, made it a killer platform for the new media revolution.

2012 closed out with Nintendo reporting record sales and profits. It was hard to believe that people were once worried about the future of the company only 18 months before.

Scenario #2: Nintendo Muddles Through
Nintendo's huge mistake with the 3DS caused a sharp price reduction in the summer of 2011, which lead to a sharp growth in sales. It wasn't the 5x growth Nintendo needed to make their initial sales predictions, but it still rescued their relationship with 3rd-party developers. New titles for the 3DS brought sales to a higher level, and when Nintendo introduced a revised version of the hardware that was sleeker, lighter, and with longer battery life for the 2012 holiday, it looked as if the hardware would finally be a decent seller, if not a record-breaker. Nintendo's willingness to add some DLC and make some changes to their eShop certainly helped. They made some efforts to include social networking, claiming that they'd always been about networking. Nintendo continued to believe that their inherently high-valued games would differentiate them from the smartphone market.

The Wii U launch was later than expected, and the price point was somewhat high at $349, but the solid launch titles (including both Zelda and Mario titles) showed that Nintendo had learned their lesson about software. Still, sales were not up to the heights of the previous generation of consoles. Nintendo's fiscal year results for 2012 were solid, recovering from the 2011 stumble, but nowhere near the heady days of the Wii's huge sales rush.

Scenario #3: Nintendo Fades Away
Nintendo's poor 1st quarter performance was just the beginning of their woes. While they responded quickly with a sharp price drop for the 3DS, consumers did not respond. Sales moved up for a month, but by September they were leveling off at a new level of about 1 million units per month. Hardly what Nintendo was hoping for; they had to slash their earnings estimates once again, and they no longer had any illusions about being able to sell 16 million 3DS units by March 2012.

Christmas 2011 was a disaster for Nintendo. Refusing to drop the price of the Wii below $149, the hardware stalled as almost no new 3rd-party titles were shipping. Sony's PS Vita debuted to rave reviews, and it crushed 3DS sales over Christmas. The announcement of the Wii U price ($399) and ship date (June 2012) left fans feeling unimpressed, especially when it became clear there was to be no hard drive or any possibility of expansion, only one special controller could be used, and no good new controller for playing first-person shooters. Nintendo's attempt at GDC

Nintendo really was hurting after the E3 show in 2012 gave the new hardware so-so reviews. Most of the new software were ports of existing Xbox and PS3 titles, and they looked pretty much the same. Developers had found no really useful ways to use the new controller, especially since only one player could use one. The hardware launch was dreadful, as the new Apple TV and Google TV units (priced at $99) quickly ramped up to sales levels of 4-5 million per month.

Christmas sealed Nintendo's fate, as their hardware continued to perform poorly. Developers delayed or cancelled previously announced Wii U titles. Nintendo's shares tanked, and rumors swirled of a buyout offer from Microsoft. No deal was struck, and by February 2013 Nintendo announced it was exiting the hardware business for good. Henceforth, they would develop and market software for a variety of platforms. Their characters are remembered fondly but never excite big sales again.

Nintendo's Real Problem

Nintendo has some serious troubles right now, and the future looks more than a little grim. Since their apocalyptic announcement yesterday, a few more facts have emerged.

Item: Nintendo stock dropped 12% yesterday after the news hit, to end at 12,290 yen (about $160 per share). This is the lowest level it's been since 2006, before the introduction of the Wii. Now today it dropped to 11,100 yen, for a total drop of about 20% for the week; shares have dropped 50% since the beginning of the year. Not surprising since Nintendo slashed their earnings forecast for the fiscal year by 82%, with profits expected at the lowest level in 27 years.

Item: Nintendo's market capitalization dropped to an astounding 1.7 trillion yen, or about $22 billion US at the current exchange rate. Which is about in the low end of the range where Zynga's IPO is expected to bring in.

Item: The exchange rate for the yen hit a 4-month low today at 77.45 yen to the dollar, which only makes it harder for Nintendo to make money on products it sells in the USA.

Item: Iwata-san cut his salary in half, and cut other executive salaries by 20-30%.

Item: The price cut on the 3DS may mean that Nintendo is selling each unit at a loss. Reports on this are mixed, so take this one with some salt added. It's certainly true, though, that Nintendo is making far less on each unit sold than it was before the price cut. That $80 price cut means that Nintendo will have to sell at least 3 or 4 of its own software titles to make up the profit differential, and more of third-party titles.

Item: 3D is falling out of favor in the game industry. Here's what EA said yesterday, in a Gamasutra article:

Electronic Arts has seen poor returns when allocating its resources to displaying its games in 3D, according to CEO John Riccitiello, who says that the company would prefer to use those resources focusing on social features.

Speaking to company shareholders in a meeting remotely attended by Gamasutra, Riccitiello said that EA's business responds to the needs of consumers, and from what it has seen, consumers are not asking for 3D.


What does this all add up to? A very uncertain holiday selling season for Nintendo. They've pretty much fired off all their big weapons for the rest of the year, at least as far as price cuts are concerned. They certainly can't afford to cut the price on the 3DS any more, not when they are losing money on each one (or near enough to that). They have to sell enough volume of the 3DS to get volume discounts on the components, and perhaps do some re-engineering, to get the price down further. That couldn't really happen until 2012 sometime, and only if sales pick up significantly will Nintendo get some volume pricing.

Nintendo has one more price cut left for the Wii, to $99, and they may well play that card for the holidays. Wii sales have not been juiced much by the price cut; news of its replacement may already be affecting the desire to pick up the Wii. More importantly, though, is the complete drop-off in third-party Wii development. Basically, for interesting new Wii software it's Nintendo or nobody.

Can Nintendo rush the Wii U out the door? Not if they want to have a successful launch. Even if the engineering was far enough along, there's the little matter of launch software. Surely Nintendo learned from the 3DS launch how important it is to have some gotta-have-it titles when you launch new hardware. That whizzy 3D-without-glasses feature you that was enough to move hardware at a premium price turns out to be a gimmick with low appeal to gamers. Perhaps that may change, if someone releases an awesome piece of software that really shines in 3D and shows why it is a useful feature in a game. I doubt that will happen, though.

I don't expect 3DS sales to reach the levels Nintendo is hoping for; I would be astonished if they managed to reach their goal of 16 million units sold by the end of March 2012. I expect they'll fall short by millions. The Wii U will launch next year sometime, but I hope for Nintendo's sake they do a sensational job on the launch software. Even if they do, success is still iffy. The markets have changed; certainly 3 years in a row of falling console software sales should be enough to tell us that. The market for retail packaged software will never recover to its previous heights. This may not hurt a company like EA that is busy transitioning to digital distribution, but a company like Nintendo has come out repeatedly and says it doesn't think online anything is worthy of a big investment. That's not a winning strategy for the future.

Signs Of the Apocalypse For Nintendo

We gotta get out of here and look for customers!

I can't really say that I'm surprised that the Nintendo 3DS is continuing to not sell well. I thought, back before the launch, that it would have a good launch month and then sales would be mediocre at best. Here's what I said back in January:

The 3DS and PSP2 appear to good initial sales that quickly decline to disappointing levels. Partly because the price points will be so high initially. Once the fanboys have gotten their units, less fanatical customers will look at the prices and think about buying a smartphone instead. Many will. Developers in particular will be annoyed, because developing for these new handhelds will be significantly more expensive than the old handhelds, yet software sales will be worse. This will lead to a quick fall-off of third-party support.


Hmm, looks pretty much like what's been happening. I figured Nintendo would have to respond by cutting the price, but knowing how reluctant they are to do that I figured they would wait until just before the PS Vita release (say in November), then drop the 3DS to $199. But today the shoe has dropped, and it's a damn big shoe: Nintendo has dropped the price of the 3DS to $169, effective August 12.

Just so sales won't fall off a cliff between now and August 12th, Nintendo has also announced that current 3DS owners and those who purchase a 3DS between now and August 12th will get 20 free downloadable games between now and the end of the year. (Not that you get to choose which ones you get... Nintendo chooses them for you. They are old GBA and NES titles... good games, but I don't think it's enough to make anyone spend an extra $80 in the next couple of weeks to buy a 3DS.)

This is a stunning announcement from Nintendo that 3DS sales have not just been disappointing; they have been really, really bad. Nintendo usually resists price reductions with all their might; they refused to drop the price on the Wii despite months of falling sales, only caving when they went ahead and announced the Wii U. And they still only dropped it $50, to $149.

Here's the key info from IndustryGamers:

Nintendo has sold 4.32 million 3DS units since launch earlier this year, along with 13.96 million pieces of 3DS software. In the first quarter ended June 30, Nintendo sold 710,000 3DS units and 4.53 million Nintendo 3DS games.The new 3D handheld, however, has not met Nintendo's expectations. In fact, Nintendo largely blamed the 3DS for its poor first-quarter performance in which the company saw a net loss of ¥25.5 billion ($324 million) and sales drop over 50% to ¥93.9 billion ($1.19 billion) from ¥188.6 billion ($2.40 billion) a year earlier.

I guess losing $324 million in a quarter is enough to make even Nintendo sit up and take notice. Check out those sales figures; 710,000 units in three months, worldwide. That's not even 250,000 a month; and Nintendo still expects to sell a total of 16 million units this fiscal year, when so far they've only sold a little over 4 million? Let's see, that would mean sales would have to quintuple the current level immediately. OK, the price drop will certainly boost sales, but there's no way it'll be a 5x increase. I don't see Christmas sales making up the difference, either. Maybe Nintendo can sell a couple of million over Christmas, maybe even 4 or 5 million... but not 10 million.

Nintendo had been hoping that the arrival of the eShop and some software featuring key Nintendo franchises would boost sales. Clearly, those hopes have been thoroughly dashed. Worse news for Nintendo is that 3DS games are being cancelled (Mega Man Legends 3) or delayed (Metal Gear Solid: Snake Eater 3D). If the third-party publishers are already starting to vote with their development dollars, this platform could be in big trouble.

While Nintendo attempts to goose 3DS sales up into the 1 million a month category (which looks like a huge stretch goal), iPhones are selling at the rate of 7 million per month, and Android phones are selling at the rate of 15 million per month.

This does not bode well for the Wii U, either. Nintendo's got to make some more fundamental changes to their business model than just a price cut here and there, if they want to succeed in a fast-moving market.

The Decline And Fall Of Nintendo

"Wii U" is the sound of an air raid siren warning of impending destruction, Nintendo.

Nintendo has been the iconic leader of the videogame industry since they re-invented the business in the 1980's. The industry had been crushed by the flood of Atari games of questionable quality, and was in a state of shock. Some predicted that it was a fad that would never return. Then Nintendo hit it big with the Nintendo Entertainment System (NES), and gradually the industry once again became popular. Nintendo's arch-rival Sega was very successful with the Genesis, but Nintendo kept their crown with a succession of amazing titles and newer consoles. The NES was followed by the Super NES, and then the N64, each bringing a substantial boost in graphics power and a raft of great new games.

Sony entered the fray with the PlayStation, which quickly became a hit. Part of the appeal for the PlayStation was the use of a CD as the game medium. This didn't matter so much to the consumer, but it made a huge difference to publishers. CDs were easier and cheaper to produce, and could be produced much faster than cartridges. Cartridge production, and the bottlenecks imposed by Nintendo, could delay the release of games for months. Worse, you could have a hit game and be unable to restock for months while waiting for your cartridges to be produced and shipped by boat... and then perhaps the enthusiasm had waned and you were stuck with a warehouse full of unsalable games.

Microsoft joined in the fun with the Xbox, which also used a disc as the format. Nintendo, now beset with two strong competitors, finally bowed to the inevitable and released the GameCube, which used a disc. But Nintendo's intransigence at adopting a new format (not even a new business model, mind you) had cost them the leadership position in the marketplace.

Consoles continued to advance, and with the PS3 and the Xbox 360 Sony and Microsoft pioneered a robust online service that fostered multiplayer action, community, and sales of downloadable products. Nintendo made a half-hearted effort to get online with the Wii, but mostly they were happy to be outselling Sony and Microsoft for a couple of years. The price advantage of the Wii and the popularity of motion control among a wider than traditional gaming audience more than made up for the weak online offerings. (Friend Codes...Really, Nintendo? How could anyone take your online efforts seriously?)

Now we come to the last two years of the game industry. Massive changes on a scale not seen since Atari collapsed have transformed the business. Mobile gaming on smartphones and tablets has grown swiftly, to the point where its sales will surpass handheld console software sales this year, even with an average selling price of less than $2 versus about $30.

Free-to-play games, downloadable content, digital distribution, subscriptions, ad-supported... all of these market areas are zooming. In a short time the free-to-play model has burned through the MMO market, to the point where it's unusual that a new game isn't offered with that model, and old games are rapidly converting. Digital sales are on a pace to rapidly overtake retail sales within a year or two.

Social gaming has created new game companies with market caps that rival the biggest and begin to approach Nintendo's. Zynga has a current market cap, pre-IPO, of about $10 billion, versus Nintendo's current market cap of $27.5 billion, and compared to EA's of $8.1 billion and Activision's $13.7 billion, that's not bad. Of course, if you want to look at profit margins, Zynga hasn't released that info... but all indications are that their margins are huge.

Meanwhile, retail sales of traditional packaged software have fallen for two years running, and this year looks to make it a third year in a row. Consumers are busy playing games they already have in multiplayer mode, buying downloadable games or new content for games they already have, or playing games on their smartphones or on Facebook. Looming on the horizon, streaming games from OnLive and Gaikai are being built into more devices, and smartphone technology will be connected to TV sets in the family room to bring their open development model, thousands of titles of low-cost games right into direct competition with consoles.

What is Nintendo's strategy in this time of essential transformation? Why, keep doing business the way they have for years. Sales are dropping fast for the Wii? Wait a while, reduce the price a bot, and announce a new console with a new feature and somewhat better performance. The exact same business model of selling software in retail stores, though. That should fix the problem, right?

You'd think Nintendo would have learned something from the 3DS debacle, where sales have been so far below their expectations as to be embarrassing. (I mean, you get 1.06 million units sold in Japan, your home market, in three months, when you had projected to sell 1.5 million in the first week? Pathetic.) No, instead Nintendo figures that there's really no problem here, just put some more money into marketing and when some new games come out everything will be fine.

Nintendo's take on the free-to-play phenomenon that has generated hundreds of millions (if not billions) in profits in a couple of years? No way will Nintendo do any of that, Iwata-san tells the Wall Street Journal. Nintendo won't be doing any of that nonsense, it would be bad for the industry, not to mention Nintendo itself.

To me, this signals the beginning of the end for Nintendo. Perhaps their perspective is skewed because there isn't much of an online market in Japan, where most kids don't have computers, and aren't downloading or playing games on computers or smartphones. Whatever the reason, the market is changing fast, and Nintendo has just declared they don't believe in reality.

It's sad, really. Think about how well Nintendo could do by offering Pokemon as individual downloads... or Animal Crossing... or new dungeons for Link to explore. They have so many iconic brands that are not realizing their value, as we wait ever-increasing lengths of time for new titles to come. Meanwhile developers flock to other platforms, and the creative energy goes elsewhere.

The 3DS is just the first warning sign. I don't think the Wii will have a strong life, even if Nintendo reduces the price yet again. The Xbox 360 continues to roll up new sales in part because there's a lot of great games coming out for it... not just in retail stores, but online. The PS3 is growing, too... and those two consoles are twice the price of the Wii. The Wii U, when it finally arrives, will be dealing with handicaps of a high cost and a small library of games, while the existing consoles and the new smartphone-based gaming juggernauts will be conquering the market. Without a significant online presence, Nintendo is doomed... and they show little signs of any progress even towards something half as good as Xbox Live or PSN. PSN has already started exploring free-to-play, and I'm sure by next year that business model will be well-established on consoles. Just not Nintendo's consoles.

What could Nintendo do to succeed? Embrace online, create a robust online experience, leverage their IP into new business models even if they aren't the ones producing the software. Sure, release a new console... but make sure your key software titles ship with it, not months afterward (the 3DS shows the folly of delayed release of key software). Keep the Wii generating revenue, reduce the price to $99 this holiday. Be ready to cut the 3DS to $199 for the holidays, or sooner if need be, and pack in a software title. Throw open development for the 3DS so that it can do more than just play games; make it easy for developers to extend its capabilities. Embrace digital distribution of your titles, create DLC for your hit titles. If Sony can get their old PlayStation titles onto Android, you can too.

Drop the prices on your old software to see where you can maximize revenue. Everyone with a Wii should have the incentive to get lots of old NES and SNES titles... run sales, promotions, get people excited about turning on their Wii to see what the latest is.

Nintendo, you have so many advantages, and you're wasting them right now. If you were a US company the vultures would be circling, looking a for a white knight to buy them out and start leading the business in the direction of profits once again. Hey, Apple, want to take over a slightly used game publisher?

Sadly, I don't see Nintendo changing much, nor do a I see a company buying them out. The likely scenario is a slow fade into irrelevance, as other parts of the industry grow faster. With a few more years of this sort of decline, Nintendo may have to dial back further and just become a software company. Hopefully, their best characters will survive in some form. Nintendo may be able to remain a viable company, but I don't think they'll ever lead the industry again.

3DS Sales Continue Slow

It's lonely here in 3DS land.

Nintendo continues to struggle with selling the 3DS. While they recently achieved the milestone of 1 million units sold in Japan, that's not something to celebrate for them. Why not? Because it took Nintendo far longer than they originally predicted to sell that number. Nintendo initially projected that they would sell 1.5 million 3DS units in Japan before the end of March. Instead, they've just now hit 1.06 million units, some three months later than they envisioned (and still 500K short of their goal).

Nintendo's hoping that the introduction of their online eShop, and some better games scheduled for later this year, will boost the sales. So far Nintendo has pooh-pooh'ed any suggestion that they might have to lower the price, especially with the PS Vita coming later this year at the same $249 price point as the 3DS. Sure, they can say that now, but if 3DS sales don't jump up in the next few months the question of a price reduction will surely be raised again.

It will be interesting to see if the Wii price reduction gives it a boost this summer. Nintendo may be getting just a tad desperate looking forward to the holidays if their sales picture doesn't improve by then.

I don't think 3D movies on the 3DS will be enough to save it... especially since 3D seems to be treated with increasing disdain by movie-going audiences, who rightly see it as an attempt by studios to justify higher ticket prices.

E3 Post-Mortem: Who Won, Who Lost

See full-size infographic here.

Now that the booths have been struck, the loudspeakers turned off, and the booth babes are fully dressed again, it's time to sort through all of the information, misinformation, hype and rhodomontade to figure out who won, who lost, and who's going to be up and who's going to be down in the coming year. Some interesting data on that point was compiled here by Webtrends, shown in the graphic above.

Adding up total mentions on the internet, Nintendo won with 43.1%, Sony had 31.2%, and Microsoft had 25.7%. Of course, it's not just who got talked about the most, it's what people said about it. Nintendo, going into E3, was certainly the favorite to get the most buzz, since they were introducing a new console.

Nintendo's introduction was certainly not an unqualified success. One very independent measure is what happened to Nintendo's stock price, which dropped 5.7% the next day and then another 5.2% the following day. Many people were confused by the presentation, which focused more on the Wii U controller than on the Wii U itself, to the point where some observers were wondering if Nintendo was introducing some sort of tablet gaming device instead of a new console. It didn't help that Nintendo was more than usually vague about speeds and feeds, leaving the tech journalists without much to talk about. Even when it came to game software, we were shown technical demos and some concepts about game design rather than actual games. Clearly this new console is quite far from being ready for release. It feels to me like Nintendo was rushed into announcing the device by the rather alarming drop in Wii sales over the past 6 months, and the disappointing 3DS sales, which between them has left Nintendo in rather poor condition.

Meanwhile, Sony had to spend part of its time apologizing for the massive security problems and the PSN shutdown. They did manage to redirect attention to their new handheld, announcing the name (PS Vita) and the price ($249). The name is about as enchanting as the Wii U name; Japanese companies seem to have problems coming up with really good names in the last decade or so (I still like Super Nintendo Entertainment System, myself). The price announcement was a surprise, and puts Sony in a good competitive position against the 3DS this holiday season. Assuming, that is, that Nintendo doesn't drop the 3DS price before the PS Vita release, which would be the obvious tactical move.

Microsoft didn't have any new hardware to talk about, which left them pushing existing hardware... specifically, Kinect. They showed Kinect enabled for nearly everything, though it was pretty clear that adding Kinect capability to a shooter is not exactly a must-have combo. Announcements for Xbox Live video content and new games were the primary news for Microsoft.

Publishers were, of course, mostly talking about their new titles. Electronic Arts was pushing their new Origin service, a combination of digital distribution and social network. Activision was talking about their new Call of Duty Elite subscription service. Both of these things mark the shift of the industry from purely depending on retail store sales to moving to digital revenue and subscription services.

Overall, I saw nothing coming out of E3 that would help the traditional retail sales market. It's harder than ever for a title to succeed at retail, unless it happens to be a sequel to a best-seller. Software sales through retail stores have sunk for three years running, and while sales of accessories have masked it somewhat this year, it's clear that trend will continue. Digital distribution and other business models are the future of the gaming industry. Some publishers seem to be fully aware of this, others are being dragged into it... and some are closing their eyes and hoping it goes away.

I think Nintendo has an interesting new console that will do OK for them, but it will not be as successful as the  Wii. Sony has a better handheld than the 3DS in their new PS Vita, but it remains to be seen if a $249 dedicated gaming device can really be a huge success in a world of smartphones and tablets with thousands of free games. Microsoft seems to be hoping that their Kinect, expansion of Xbox Live to Windows and smartphones, and the smartphone partnership with Nokia will be sufficient to maintain their leadership position in the console business.

I think huge changes are still heading for the console business, and Nintendo seems ill-positioned to meet those changes. Sony and Microsoft, at least, have worked hard on their networks for their consoles. Nintendo has barely acknowledged its existence. I fear for their future.

As for the game industry, E3 no longer represents the future. The revenue is quickly shifting to digital distribution, social gaming and mobile gaming. Console gaming will continue to be a major force, but it will no longer be the only game in town.

Wii U: The Future

The Wii U controller is bigger than a 3DS opened up.

Nintendo has to be a little disappointed and perhaps puzzled by the reaction to the Wii U introduction. Sure, the industry generally had nice things to say about it. Third-party developers actually got invited to be on stage for Nintendo's presentation of its new console, which is a first. They returned the love by saying nice things about the console, no doubt hoping that Nintendo will be more helpful with third-party development then they have been in the past.

The puzzler, for Nintendo, was what happened to Nintendo's stock price after the announcement. Wouldn't you expect that the stock, which had been trading near a historic low, would see a bounce when Nintendo actually unveiled their new hardware? Nope. Nintendo's stock dropped 5.7% the day after the announcement, and the day after that it dropped another 5.2%. Analysts, it would seem, are not impressed.

Of course, Nintendo pointed out that their stock dropped when the Wii was announced, too. And it dropped 10% when the 3DS was announced, though given how that's been selling a drop in the stock price seems like a reasonable response.

Certainly we don't really have all the information yet to really judge the Wii U. We don't know the graphics performance or the price point or the ship date, or what the launch titles might be or how they look. Yet there is cause for skepticism about the Wii U's chances. I doubt it will do as well as the Wii did. The Wii had two big advantages going for it: It was substantially cheaper than the PS3 or the Xbox 360 ($249 versus $499 or $599), and it had motion control. The latter was new and had some possibilities for game play, but many people were skeptical that it would really be useful. To some extent, they were right; the Wii controller was great for some new types of game play, but never really worked for things like shooters. Many developers never really put a lot of effort into the Wii, and it showed. The Wii sold very well, but ultimately the software library is quite disappointing.

The Wii U will be at least as expensive as its competition, and quite possibly $50 or $100 more (or even higher, if Microsoft or Sony drops their price in the next year). I doubt the graphics performance will be substantially different, at least to the naked eye; in fact Nintendo was showing Xbox 360 and PS3 graphics as part of their Wii U demo, passing it off as Wii U graphics, until they were caught at it. Which leaves the Wii U's controller as the only differentiator, and that's going to be up to software developers. Will they really put in the necessary extra time and effort to develop for the Wii U's special controller, or will they just port over titles and do something that's quick and easy in terms of supporting the controller? Given budgets for game development these days, I think we know the answer.

It will be up to Nintendo to demonstrate with their software how the Wii U is special, and if they do then maybe some third-party developers will spend the extra time and money to do the custom development work.

My guess is that the Wii U will allow Nintendo to compete more evenly with the Xbox 360 and the PS3, but it's not going to be a huge success. They really missed their chance here by focusing all their effort on the hardware. You'll notice there was no mention of online gaming, digital distribution, social gaming, DLC, or any of the other things that have turned the industry on its ear in the last few years. Nintendo doesn't really understand that stuff, and obviously hopes that it will all just go away and people will go back to buying new consoles because they are, well, new. I just don't think that's enough these days, and I think so far the 3DS is a pretty good argument in support of my position.

Nintendo's got a lot of software mojo, and if they produce some killer games with their iconic properties people will buy them, no doubt. But I don't think Nintendo will be leading the industry into new growth with this sort of hardware. They're still fighting the last war, and the battle has moved to new areas. Sony and Microsoft seem to have some understanding of this, emphasizing their networks, music, video, and other capabilities. Nintendo looks very 20th Century, I'm afraid. Great if you're a nostalgia buff, but not so great if you're hoping their stock price will soar.

PS Vita (NGP) vs. 3DS vs. iPhone 4/5, Round Two

Now that Sony has announced the most important piece of missing information about their new console (The price, not the name), and we have some sales history of the 3DS to examine, it's time to revisit the head-to-head comparison of the three major contenders for the handheld gaming crown. I first examined these three platforms in this post, after Sony first announced their new handheld gaming device.

Let's look at the hardware specs first. The 3DS has a 3.5" 400 x 240 screen on top (that's 3D mode resolution; it would be 800 x 240 in 2D) and the second screen below is 320 x 240. The PS Vita has a single 5" screen with a resolution of 960 x 544. The iPhone 4 (and likely the iPhone 5) has a 3.5" screen with a resolution of 960 x 640. The PS Vita has the largest screen that's close to the highest resolution screen, which is the iPhone screen. The 3DS has the glasses-free 3D effect which none of the other devices have, but for about 15% to 25% of the customers the 3D effect either doesn't work or produces nausea and headaches, or is just unpleasant.

What about graphics performance? Clearly the PS Vita, with its quad-core ARM A9 CPU and Power VR graphics co-processor has the others beat. The iPhone 4 has a single-core ARM-based A8 CPU, but the iPhone 5 is likely to have the same A9-based dual core CPU that the iPad 2 has. It still won't be up to the performance of the PS Vita, but it won't exactly be a sluggard, either. The 3DS has some custom silicon in there, so it's hard to say for sure how it compares. According to this article, the 3DS can put out about 30 million triangles per second, about the same as an iPhone 3GS and slightly less than a PSP. Which means it's way, way behind a PS Vita or an iPhone 5, by about an order of magnitude I'd guess. The fillrate in pixels per second is about 1.6 billion for the 3DS, which is definitely better than the PSP at 664 million or the iPhone 3GS at 500 million... but certainly way behind the PS Vita or the iPhone 5 (the iPhone 4 has a raw fillrate of at least 700 million pixels).

Finally, there's the price point comparison: The 3DS is $249, the iPhone 4 is hard to compare since it's under a contract, but you can get an 8 GB iPod Touch for $229, and the PS Vita will be $249.

I have to say that the 3DS doesn't stack up well at its current price point. Certainly its sales have been weaker than Nintendo projected, and it's currently limping along at a fairly low level. Nintendo is hoping that some strong software titles and more marketing spending will bring up its sales, but I think Nintendo will have to cut the price to $199 before Sony launches the PS Vita, or shortly thereafter.

Nintendo's big edge with the 3DS was to have been the 3D effect, but that's gotten a mixed reception from customers. Even Nintendo has been busy de-emphasizing its importance. Without that, thought, the 3DS doesn't have any advantages over the competition aside from exclusive software titles. Which is no small advantage, as Link and Mario and Starfox and others are a huge draw. It may not be enough for Nintendo to overcome the hardware and business model advantages of iPhones, the PS Vita, and of course Android smartphones and tablets. There are far more mobile gaming options than ever before, and smartphones and tablets have a variety of other features that make them extremely attractive.

Sony seems to be working towards having a variety of inexpensive downloads for the PS Vita, as well as movies, and perhaps will be more open to other functionality. Nintendo has said they will have 3D movies available, but 3D movies aren't doing all that well at the box office either. The 3D fad may have run its course... which would be a bad thing for Nintendo since it planned for 3D to be the major selling point of the 3DS (hence the name!).

The iPhone (and Android smartphones) have suffered from a lack of top-quality games, but titles like Infinity Blade have shown that it's possible to do some very impressive games for the hardware. (And with Epic Games announcing they've brought in more than $10 million dollars from Infinity Blade, it's clear you can make real money from these games, too.) I expect we'll see more high-quality games for smartphones in the coming years.

Verdict: On the raw hardware level, the PS Vita has the horsepower, the biggest screen and the best array of features. The iPhone/iPod Touch has an impressive variety of apps, many of them free, and quite decent hardware performance even though it lacks dedicated gaming controls. The 3DS is bringing up the rear right now, but with better software and a lower price point it could be quite competitive. Nintendo may well release a sleeker, less expensive version next year, and then it will be a different story.

Wii U vs. Xbox 360 vs. PS3: About Even

Wii U. Better than Wii Wii, I guess.

Nintendo has announced the final name of Project Cafe: Wii U. Just when you thought the Wii name was the strangest console name ever... Wii U. Nintendo introduced the console with some nice accolades from industry executives, some good-looking graphics videos, and plenty of laudatory exposition. Actual details about the hardware were rather scarce. Here's what we know:

• 1080P HD graphics output
• Controller with 6.2 inch screen, dual analog controls, touchscreen, camera, microphone
• Output can be from the Wii U to a TV or to the controller
• Backwards compatible with all current Wii controllers and games
• Games on proprietary optical discs
• 4 USB slots
• Release in 2012

What's missing? Well, you'll notice that what they didn't say is perhaps more important than what they did say. No mention of a hard drive in the console... so you can count the rumors that said there wouldn't be one as confirmed. If they were putting one in there they would have mentioned it. What they will have is some internal flash memory, size unspecified, and the ability to connect an external USB hard drive.

Graphics resolution? No specs at all, just some nice looking video. Which means that the Wii U graphics power will probably be around the level of the Xbox 360 or PS3, perhaps somewhat below. If the graphics output was substantially better in any way (resolution, polygons, texture mapping) you can bet Nintendo would have touted it. They didn't, so I think it's a safe assumption that the Wii U will not be setting any graphics records for home consoles.

The Wii U controller.

Price? No, no mention of that. Again, I think if they were planning to have a substantial price advantage over the Xbox 360 or the PS3 they would have mentioned it. Although, since they are more than six months away from the release date, keeping their options open is a good idea. Microsoft may well decide to drop the Xbox 360 price for the holidays, with the spectre of the Wii U looming for 2012. I'd guess that Nintendo will come in at least at $299, and quite possibly higher.

There was also no mention of digital distribution, any differences in how Nintendo deals with developers, or any of the new things that have been upending the game market like social games, free-to-play, or other new business models. Seems like Nintendo is counting on business as usual; if they were gonna do something different you'd have heard them talking about it.

It's not clear, either, exactly when the Wii U will appear. I'd guess earlier in 2012 rather than later, since this announcement will probably slow Wii sales even further (especially since the Wii U is fully backward compatible).

How does the Wii U stack up against its competition? Lack of a hard drive really cripples its ability to compete with downloadable content, or even streaming content that needs substantial caching. Assuming graphics output to be roughly the same, and the pricing to be about the same or higher, the real differentiation is the controller with the screen. Though Sony may have that covered with the PS Vita, and Microsoft has already shown a connection with Windows Phone 7 devices. The installed base of the Xbox and the PS3 are huge advantages, as are their software libraries. Motion control is no longer a unique feature for Nintendo. I think all the Wii U does is level the playing field; I think Nintendo is going to have to show some unique and compelling software titles for the Wii U to make inroads against the Xbox 360 and the PS3.

Sony Announces PlayStation Vita, Amazing Price

3DS, this machine's coming to get you.

Sony has announced the name for the NGP (Next Generation Portable): PlayStation Vita (pronounced VEE-ta). Yeah, I know, it sounds like something from Jersey Shore. Well, it's better than the Wii. Regardless of what you think of the name, though, the astonishing thing is that Sony announced the price: $249 for the Wi-Fi version, $299 for the 3G/Wi-Fi version.

Sony has thrown down the gauntlet at Nintendo's feet, pricing the PS Vita exactly the same as the current Nintendo 3DS. In a head-to-head hardware matchup, the 3DS pales in comparison to the gorgeous HD 5" OLED touchscreen, rear touch panel, dual analog controls, dual cameras, and amazing raw horsepower that puts it close to the PS3 in performance.

Given that the 3DS has not exactly set the world on fire with its sales or its features or its software so far, this is shaping up to be a real battle for the holiday season when the PS Vita finally ships. Nintendo has about six months to ship some really strong titles, encourage third-party developers to do the same, get some good marketing programs in place... and maybe reduce the price to $199 before the holidays. So far, the software for the 3DS has not been impressive, and the hardware is clunky, and customers don't seem to find the 3D effect more than a gimmick (and one that about 25% of the audience either can't stand or can't notice). I think the 3DS will have to be $50 cheaper than the PS Vita if it wants to be at all competitive. A better version of the hardware would be nice, one that was smaller and lighter with better battery life.

Sony's not ignoring the threat from smartphones, either, by making the PS Vita compatible with the PlayStation Suite for Android. Old PSP titles that were downloadable can play on the PS Vita, too. This all may not be enough to really deal with the threat of smartphones, but Sony seems to understand the nature of the problem, which is more than I can say for Nintendo.

It's shaping up to be an interesting Christmas this year.

3DS Will Outsell All Other Consoles in Japan?

Current 3DS sales figures make puppies cry.

In a rather bold prediction, video game publisher Enterbrain is claiming that the 3DS will outsell all other consoles this year in Japan, with a total of over 2.8 million units by the end of this year. Interestingly, they see the total 3DS sales dropping in 2012 to 2.475 million.

If you look closely at these figures compared to current 3DS sales, they would have to sell about 84% more than it's currently selling... every week for the rest of the year. Which seems more than a little optimistic given how lackluster 3DS sales have been so far. I really don't think a software title or too is going to make a huge difference at this point.

Of course, this just represents sales in Japan; worldwide sales would be perhaps triple that amount, maybe as much as 8 million units. To put 8 million units in perspective, that's about a month's worth of iPhone sales... or three week's worth of sales for Android smartphones.  Or  about two month's worth of iPad sales.

Perhaps you can see why I think smartphones and tablets are much more important to the future of gaming than the 3DS. A 3DS game by the end of this year might have 8 million installed units out there to sell to; an iPhone game or an Android game will have well over 100 million installed units to sell to. Heck, even iPads will have around 50 million in place by then.

So far Nintendo's stepped up the TV ads for the 3DS, but that doesn't seem to be moving the needle. I hope they've got some plans to reveal at E3 that will revive the 3DS, but I'm not expecting much.

Video of Wii 2: Nintendo Fights The Last War

Some interesting video from what's apparently a private developer presentation of Nintendo's new console... you can see the drawing of the controller, and the unit itself sitting on the table. From what this shows it seems the rumors about a controller with a built-in display are true.

The case design may or may not be the actual case design; it's easy enough to mock up a case or change it.Then again, the case design is really about the least important thing for a console. The price is more important, and I think that having a display in the controller is good evidence that the price point on this puppy is going to be north of $300. I suppose Nintendo could make the display controller optional to reduce the price point, but then that reduces the chances for third-party support of the display controller. And if the display controller is a key selling point of the new console, it would seem odd not to put one in the package. So I'm predicting there will be a display controller packed in with the console.

It does make some fiscal sense for Nintendo to leave out a hard drive; it's an expensive component, and requires  more power and other support. Cost is usually a key factor in console design, and especially for Nintendo, who hates to lose money on each console. They don't have the deep pockets of a Microsoft or a Sony to be able to afford a loss leader and hope to make it up on high-margin software later on.

Of course, if they wanted to support a local area network so you could store things on your computer's hard drive and just pass them along to your console, that would be an interesting way around the problem. But not one Nintendo is likely to use, seeing as how that would make piracy even easier. Nintendo spends a lot of time and effort to close down piracy, which makes sense given how high their software prices are.

I still think that Nintendo is building hardware to fight the last war, and creating something that's poorly positioned to fight the next battle in the family room. Nintendo's Wii 2 will be expensive (over $300, maybe $400 or even more) and rely on discs sold in retail stores, and have very limited functionality besides gaming (probably Netflix, maybe a music streaming service). Its main selling points will be graphics horsepower and a controller with a display. There will be some downloadable games available; they'll be small and with development tightly controlled by Nintendo.

Meanwhile, consoles based on smartphone technology (Apple TV and Google TV), and streaming consoles (OnLive) are heading to the family room on or before Nintendo's time frame. These consoles will feature low price points ($100 to $200), games distributed digitally, and a huge array of other media options and app functionality. Development will be wide open, and thousands of apps will be available. App prices will be low (less than $5 to $10) and many will be free, with a variety of monetization models (freemium, subscription, advertising-supported, and others). These consoles will also have the option of using smartphones or tablets as display controllers, as well as more traditional controller options. Motion control will be readily available, too. Social games will flock to these new consoles.

Nintendo may sell some goodly number of their new consoles, but they will be massively outsold by the smartphone-based consoles. Microsoft and Sony had better get some planning done about how they will respond to these events. Sure, they are both making more moves in the right direction than Nintendo, and right now the Xbox 360 and the PS3 are selling better than ever. In the tech business, though, things can change very fast. Look what's happened to RIM and the Blackberry... that can happen to consoles, too.

Console Apocalypse Predicted

That's pretty much what the future looks like for consoles, I fear.

I guess I'm not the only one who sees signs and portents of the End Times... the end of the standard console market. Computing power continues to increase rapidly, and the smartphones have hastened the advances. The 7 year cycle of the home console is now woefully inadequate to keep up with the relentless march of technology. Worse, raw horsepower and pushing polygons is now less important; games are growing more because of business models than 3D models. The advance of technology is being used to reduce the cost of producing HD graphics for a home display, striking the consoles in their weakest point: price.

The real weakness in the console market is the dependence on physical distribution of games. This keeps publishers tied to high price points (now $60), and high development budgets (since you have to put $60 or more of entertainment value in each package) and dealing with retail stores and returns and inventory and packaging. When you take all of that away with digital distribution, you are freed from the need for high price points. Which means content can be of variable length, and lower development budgets are possible. Alternative business models like free-to-play or ad-supported are viable. A huge range of possibilities opens up... most of which traditional console makers are afraid to use.

Why? Because stepping in that direction means pissing off the retailers, who are still responsible for the majority of their revenue. So they take baby steps, and new game companies without a physical distribution legacy are free to grow into that space. And find ways to undermine console makers, like OnLive or Gaikai or Apple TV or Google TV.

I think the 3DS is a harbinger of what's going to occur for consoles. Nintendo's new box, regardless of hardware specs, will probably be in the $300 or more price range and rely on physical distribution of game discs. Those two factors will mean it will never sell as well as consoles of the past, as new business models with $99 boxes begin to take hold in the family room.

Hardcore gamers are still tied to consoles, but even that will change over time as the new wave of boxes develops even greater power and capabilities. Remember, the smartphone-technology based family room boxes (Google TV and Apple TV, et al.) are based on smartphones that get a significant tech boost every year. Apple's last boost (from the A4 last year to the A5 this year) was about a 9x graphics improvement. How long will it take to catch up and then pass current consoles? Far less than their 7-year cycle.

Sony and Microsoft have some idea of what's happening, and are making some moves to cope. But both of those companies are not used to being nimble, not the way Google and Apple are. At least Sony and Microsoft have a chance at maintaining a reasonable market share... I am very worried about Nintendo. I fear they are heading towards just becoming a software company, like Sega did. Sounds like the big tech improvement for their new console will be controllers with a display screen... which is arguably what smartphones are for the new wave of consoles.

It's a time of great changes... and some will thrive on those changes as others wither. Place your bets now, folks, the game of games continues...

Wii, 3DS Sales Dive

Mario may be flying off the shelves, but the 3DS and the Wii aren't.

Looks like Nintendo's got an even worse problem than they thought. Both Wii and 3DS sales have really tanked in April. How bad were the numbers? In April, Wii sales were 172,000 units, which was down 38% from last year and down 40% from March. Ah, you say, desperately seeking an excuse for the big N... maybe all console sales were bad in April? Nope. The Xbox 360 saw sales jump 60% over last April, to 297,000 units, and even the PS3 was up 13% to 204,000 units, despite a wave of bad PR from the PSN debacle.

The Wii is now safely ensconced in 3rd place, and unless Sony tries even harder to sully the PlayStation brand, that probably won't change. Looks like it's well past the time for a new console introduction... maybe Nintendo will want to speed things up a little and launch it by this holiday season.

Perhaps the 3DS will save Nintendo's profits and sales while the Wii sinks into oblivion? Not with a performance like April, with only 194,000 units sold in the month. That's less than half of what the 3DS sold in its launch week in March... about as grim a drop-off as you could imagine. Well, that was the US... maybe in Japan the 3DS is doing better? Hey, what about sales during the first week of May in Japan? That's Golden Week, a big holiday in Japan and usually good for some nice game sales.

Sorry to disappoint you, but 3DS sales were flat during Golden Week, selling just over 29,000 units. Meanwhile, the PSP sold nearly twice as many units as the 3DS, almost 55,000.

Nintendo' sgoing to have to pull some rabbits out of its hat at E3 to keep the rest of this year from being pretty dreadful. Wii at $99 by Christmas?