198 Comments

Summary:

On Monday, well known gaming industry analyst Michael Pachter released a research note proclaiming the forthcoming Nintendo 3DS would “revolutionize the gaming industry.” But as discussed today at GigaOm Pro, the device is doomed, and it has Apple’s iPhone/iPod Touch to blame.

Nintendo’s soon-to-be released 3DS device is causing a stir in the gaming industry. But there’s a caveat hidden in all the buzz.

On Monday, well-known gaming industry analyst Michael Pachter released a research note proclaiming the forthcoming Nintendo 3DS would “revolutionize the gaming industry.” His belief was based on the new device’s 3D experience, which he says will not only spur sales of gaming hardware (he predicts Nintendo will quickly sell 10 million units), but also raise prices of software.

As I discuss in a post at GigaOM Pro today, Pachter may be right about the company being able to sell 10 million units fairly quickly, but he’s wrong about the overall prognosis for the 3DS.

The problem isn’t so much that the 3DS won’t be a unique gaming experience, it’s that the device, and with it, the gaming experience, is built around an antiquated business model popularized over 20 years ago by Nintendo and the Gameboy. With the Gameboy, Nintendo created a model centered around the release of a new generation of hardware every five years or so and by the sales of expensive software titles over the life of the device.

But in an apps-driven world where the iPhone and iPod touch rule (and Android is making huge forward strides), this model poses a couple of different problems.

The first is the hardware life cycle and associated pricing of 3DS. Nintendo has already seen the impact of the iPod Touch, and at a likely price of $250, the 3DS may not be worth the money when compared with Apple’s offerings. (While the iPod touch currently tops out at $399 from an entry point of $199, it offers consumers more bang for their buck.) And as for five-year hardware cycles, that’s a lifetime for consumers who have grown accustomed to a new iPhone every year.

However, the bigger problem for Nintendo and the 3DS is the software model. Nintendo has grown rich on a model premised on tight control of select software titles through approved partners. These partners traditionally release expensive titles through brick and mortar and online stores.

That model worked in the past, but not in today’s market. The app-store model has unleashed a wave of innovative new games (36 thousand at last count) from hungry developers looking to free themselves from the long, expensive and highly restricted development cycles associated with traditional console gaming. In comparison, Nintendo’s process is the mobile game software equivalent of the Soviet Union: too much control, artificially inflated prices, too little choice.

Nintendo may have re-invented handheld gaming with the DS, but the visual trickery on the 3DS won’t be enough to create a sustained multi-year sales cycle. The device is doomed, and Apple killed it.

Read the full post here.

Image Source: flickr user Colony of Gamers

  1. Name 5 app-store games that are in the same league with Kid Icarus: Rising.

    Share
    1. Smarter Than You Friday, July 30, 2010

      Still waiting here, buddy. Are you going to rattle off some games that can compare with Kid Icarus?? How about something older like New Super Mario Bros. DS?

      You’ve seemed to have gone quiet on this and I don’t blame you. When you’ve wolfed something this bad on something, I’d hide behind my iPad, too.

      Share
      1. First of all, you’re being rather unfair, expecting a guy to respond to comments on some article for the rest of his life. Just because he’s stopped commenting, doesn’t mean he’s hiding.

        Of course, he’s still WRONG, as any PC gamer will tell you. If he were right about the market for gamers wanting to upgrade to a new model with slight gains every year, the console industry wouldn’t be growing so much as people moved away from PCs, siting regular upgrade costs, and the highest selling games on PCs probably wouldn’t be the ones that can be played on low end machines.
        Digital Distribution IS a good, strong, tappable market, however, and Steam’s success shows that it’s working on PCs. But, as so many others have pointed out, Nintendo has a competitive download service, particularly for the handhelds. (I miss Virtual Console releases. DSi all the time…)

        Share
  2. I’m not sure about this. The App Store has been around for some time, but there doesn’t seem to be much data supporting the idea that it has harmed either Nintendo’s hardware or software sales yet. They sold 500k+ units in the US alone last month.

    Additionally, it’s likely that the 3DS will also have its own download service, for smaller, bite-size games like those available for iOS devices.

    If what you’re saying is true, why hasn’t the App Store affected Nintendo’s business model in the 2 years it has existed?

    Share
    1. @Nav – Actually year over year sales for portables have seen significant declines (http://www.informationweek.com/news/hardware/handheld/showArticle.jhtml?articleID=224800013) – I would argue much of that is attributable to other devices like the Touch as well as the maturity of the current cycle.

      As for app-store impact on Nintendo’s model: data shows the market for portable software is down significantly YoY while another is going up – so you can attribute at least some of the decline to a new alternative (Apps).

      Share
      1. Or that these devices are 5 years old and at the tail end of their lifecycle.

        Share
      2. Hm, good point. I do think, though, that at the moment it’s too early to tell whether this is the ‘Apple Effect’ or the maturity of the cycle.

        Still, I do agree that the prevalence of bite-size games available on iOS is starting to change habits. Look at Sony’s so-so stab at it with their ‘Minis’ line. They’ve sold a million titles in 9 months. It’s almost nothing compared to App Store sales, but it means both companies and consumers are clearly responding to something.

        What remains to be seen is, when new hardware is launched, whether the bite-size market will cannibalize traditional game sales or exist along side it. After all, when a five year old handheld can sell 500k units in July, there’s clearly still demand for broader, more in-depth gaming experiences. Additionally, even the most jaded in the gaming press were floored by the the 3Ds’ 3D effect – something no-one was expecting.

        Share
      3. Have you ever thought that every DS being sold right now is setting a new record.

        It shows even after breaking the record it’s still selling. The console has now aged the reason for this decline is possible because the 3DS was announced, people have been put off buying the DS because a 3DS was announced.

        Look at the PSP Go, it shows that people still prefer physical media to digital. Everyone knows digital distribution is the future, and that’s what it is the FUTURE. It’s not now! and when the 3DS launches we will still say DD is the FUTURE.

        Unlike you (hopefully) and I most consumers do not own a fast line and some do not even have access to broadband. The average internet connection speed for homes in the UK and USA is 2-3Mb (Megabit) this means it takes 8 seconds to download a 2-3MB(Megabyte) file. DS games average at around 64MB and the largest is 512MB, now that’s quite a long download time for a game. Now think about this, the Maximum 3DS cartridge is 2GB at launch, the DS launch with a maximum of 128MB. Now a 3DS launch game could be 1GB, on an average internet connection it will take ages to download a game of 1GB. Until countries further develop a fibre network with a minimum speed of 40Mb to everyone at home, no time soon are full games going completely digital.

        Nintendo has an app store, it’s called wiiware and DSiware, offering tibits of games to play. On a fully fledge handheld console, no body wants to play small games all the time so there is variety with the model Nintendo and Sony have.

        I think you need to research in the video game generations, It does not justify to spend £99 every year on a brand new MP3 and Mp4 player(iPod nano 4th and 5thgen). It does not justify the purchase of a phone that soley depends on 3rd party software and costs over $400 every single year otherwise you can’t play brand new 15 second games.

        The handheld gaming model works because it offers the main games for everyone.

        Share
      4. How do you figure this, each life cycle for Nintendo products both hardware and software has increased. The Gameboy over twice as long time span sold over 100 million. The DS has surpassed it in hardware sales in half the amount of time to become all the time selling dedicated gaming system. Since the systems have a low failure rate unlike Apple products (I have a MacBook Pro that I have to replace the AC adapter every year and half), they tend not need to be replace. In Japan they have 70% market saturation. Sales have only decreased over the last couple month since the announcement of the 3DS. Actually the biggest thing that could kill the DS was the R4 and piracy. That has done more to hurt Nintendo then Apple small gaming share could.

        Share
  3. Where as the iphone and ipod touch are leading the market for apps and downloadable games – They still don’t compare to the experience of a traditional handheld. Its true that they are getting closer and that compelling game ideas are coming forth from developers incorporating the touch screen and tilt features. But for those of us looking for a deeper experience with analog control, apple just doesn’t cut it. The games I play on my phone are for roughly 5 to 10 minutes at a time, where as my DS gets played from 15 minutes to hours at a time. Nintendo and Apple represent different markets in the handheld world, but both are taking steps into each others territory. Apple with their more compelling games and Nintendo with their download store. I feel Nintendo is closer to encroaching on Apples territory than the other way around. Also in regards to a new iphone every year – The advancements made are similar to the DS, DS Lite, DSi and most recently DSiXL coming out every year or two.

    Share
  4. Oh come on. The article is so apple-oriented. This Apple model won’t be capable for every business.

    Videogames is a big industry that needs a big amount of money coming. And I’m not talking about those cheap games you can mainly find on Apple/Android stores, but great titles that are made with a big teams, thousand of hours and money. Of course there are independent games, but you can see statistics and succesfull games always come from medium to big studios.

    I think you are thinking about the N3DS such as a multipurpose device, when everybody knows that Nintendo focus on gaming. But I don’t know, maybe this deserves to be much than that.

    By the way, the last sentece is so terrible. Doomed? This is a success from now. Just have to read the reviews from the industry.

    Share
    1. @Edgar – If product success was determined from pre-launch reviews rather than sustained multiyear sellthrough, it’d probably make the lives of the CEO much easier :)

      Share
      1. You are misunderstanding my words.
        I’m not talking about critical reviews, but review from industry related specialist. When people who design, develop and programs talk very good and look excited about a new tech it’s a good sign.

        Share
  5. Level-Headed Person Wednesday, July 28, 2010

    Do these Apple fanboys really believe the spiel they’re writing?

    Share
  6. Nintendo going third party confirmed!

    Share
  7. Oh come on now! Wednesday, July 28, 2010

    I’m sure the user wrote this article on his iPad while sipping a Martini on the beach.

    Seriously, guy, stick to what you know. And what you know certainly isn’t the handheld videogame market.

    Share
    1. I actually wrote it on my 100 foot yacht while I smoked a pipe and drank jack and cokes. I was throwing Nintendo DS’s over the side as I typed.

      Share
      1. Robert Gunnysack Thursday, July 29, 2010

        hahaha

        Share
    2. Actually that would be unlikely since the iPad doesn’t work all that well in the Sun, but hey, maybe he can go inside and play a rousing game of Plants vs Zombies, the iPad killer game app.

      Share
  8. About the 3DS iterations, don’t worry, Nintendo already did that well before Apple (see Gameboy, Gameboy Pocket, Gameboy Color, Gameboy Advance, Gameboy Advance SP, Gameboy Advance Mini, Nintendo DS, Nintendo DS Lite, Nintendo DSi, Nintendo DSi XL)

    About the tight control of approved software, it seems the author is quite misinformed since that model has been scrapped since the DS/Wii era, else we wouldn’t be plagued with tons and tons of unwanted shovelware on both machines, which by the way the App Store also suffers from.

    The author also seems to be uninformed about the 3DS’ capabilities since it is also a music player and a 3D Movie player (first in market to do this).

    Just watch the 3DS become the best selling videogame device by a large margin.

    Share
    1. @Martin – have they changed their pricing structure? No. Pachter predicts pricing for software will go UP. Unless Nintendo loosens control, lowers overall pricing, it will see market share erosion for its handhelds.

      Share
      1. Pacther predicts many things and he is rarely right, he’s not the source that you should listen to for your analysis.

        And Market Share is a relative metric, I remember that article that showed Apple eating the DS market share. It went from 75% to 70% but even with that drop and going by the cold hard numbers, Nintendo profited more than the previous year with a higher market share.

        Cell phones are evidently more commonly used than dedicated videogame devices, so it is natural that eventually Nintendo will have a very small % of the market share pie, that in no way means that they will lose their place as the number one moneymaker in the videogame industry.

        Share
      2. Your silly, haven’t you noticed Wiiware and seen the patients for 3DSware. They have a download model, and one on the Wii that needs some improvements but actually works really well. They also know developers in the market really well. The developers are very excited about from Konami all the way to EA. It will sell very well with the gaming community and you can expect another 100 million seller. And if you check studies and the sales of the PSP Go people are still stuck on physical media. So they get you coming and going which is actually a better business model.

        Other than the no AO rating games allow, they are not very strict. So that doesn’t make sense.

        Share
  9. Yes what you don’t take into account here is.

    :: The 3DS will have cheap games to download. And it will be open up more to garage developers who want to create a downloadable game.
    So cheap apps will also be available on 3DS, alongside with multi-million budget games.

    :: Apples own business model pushes away gamers. I as a gamer want to have the option of buying one console, and not needing to upgrade after a year, in-order to play all the newest games.

    Every year Apple releases a new improved spec phone. If I want to play my games to full extent and get the most of them, I need to buy the newest hardware.

    :: No buttems, playing games on my sis iphone is a pain.

    Note im not a nintendo fanboy, I never owned a portable console before. 3DS most likely will be my first.

    Share
  10. difference between the iphone/ipod touch is that the ds and 3ds put out high quality good games, which people can rely on. These apps on the iphone can’t nearly top the quality that the 3ds offer and the true real gamers will always gravitate towards the Ds series.

    Theres a reason why a place like pax will always be full of people who own a DS when compared to people who own a iphone/ipod. The reason being that people, the real games are on the Ds, the ipod touch is just a appetizer for casual none game players, most of whom only use it for mostly music anyway.

    Share

Comments have been disabled for this post