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Summary:

Is the 3DS the device to lead Nintendo into another decade of growth and profitability? Probably not. With the gaming industry focusing more and more on tablets, smartphones and touchscreens, the company will almost certainly have to rethink its slightly antiquated business model to remain relevant.

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When I wrote a year ago that the 3DS could be in trouble, I learned a couple of things:

1. Nintendo fans are passionate. Really, really passionate.

2. Saying any forthcoming product from a company with a 10-million-man army of fans could be in trouble will result in people calling you lots of names. Lots and lots of names.

Still, I’m glad I wrote it, because I tend to think that, with this week’s news of the device’s price dropping from $249 to $169, I was largely right. My thinking went as follows: The 3DS was built with the same business model that the DS and the Game Boy employed before them, centered on dedicated hardware and the sales of expensive game titles. It’s a model that, with the arrival of smartphones, tablets, app marketplaces and multiscreen gaming, has become a bit antiquated.

Now, don’t get me wrong: There are tens of millions of people who will buy the 3DS. There are probably that many core Nintendo fans. But what we’re seeing more and more of is that the casual fan — who drove the DS into the 150 million unit territory — is increasingly spending his or her discretionary dollars on other devices.

The biggest vulnerability is with young kids, who are increasingly putting tablets, smartphones and other multitouch, multipurpose devices on their shopping lists. While it’s too early to say how many have tablets, smartphone ownership is already at 33 percent for the 15–24 age group in the U.S. That number will only grow.

But it’s not just kids. The gaming industry itself sees a tablet-filled future. EA, which just acquired multiscreen casual-gaming giant PopCap, has said its biggest growth is coming from the iPad and that tablets are where it sees the future.

Is the 3DS the device to lead Nintendo into another decade of growth and profitability?  As I said before, probably not. What will? It’s unclear, but if Nintendo wants to repeat the success of the DS, it will need to once again completely reinvent handheld gaming, offering a leap forward as big as it did with its dual-screen, touchscreen gaming device. It will also need to acknowedge the new reality where tablets and smartphones are evolving at rates faster than anticipated even a few years ago. Gaming on these devices will only grow.

I’m looking forward to whatever that new innovation or breakthrough is beyond the 3DS, because Nintendo has reinvented itself many times in its life and will almost certainly at some point lead the gaming innovation cycle once again.

For more on the future of handheld gaming, see my weekly update at GigaOM Pro (subscription required).

Image courtesy of flickr user redoxcun

  1. The reason for the price drop is SO THAT PEOPLE WILL BUY IT INSTEAD OF A TABLET, IPOD, WHATEVER. It is a way of getting people to buy it because it was overpriced before but it is now a viable option as it is cheaper than a smartphone or tablet. I thought that this was a great move by Nintendo to get people to buy their product.

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    1. @Jill – The pricing move was necessary, and it will certainly goose demand (as I said, there’s still a significant market for this device). But even with the price cut, the 3DS won’t touch the unit sales the DS did. There are too many alternatives for discretionary purchases for the 3DS target market as compared when the DS came out.

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    2. Except that the iPod touch is only $229. And if Apple introduces the next generation iPod touch at $199 or lower in September, you can kiss the 3DS goodbye.

      Here’s the thing: iPod touch doesn’t have a competitor.

      Actually, it goes have a competitor. All the traditional handhelds like the Gameboy and PSP. The only problem is for Nintendo and Sony is, they still think it’s the 1990s and operating on a multi-year hardware cycle, whereas Apple took the touch and is revving it annually.

      The 3DS will fail because it’s business model was predicated on the anticipation that it would sell many more millions at the $250 price level and Nintendo would be able to recover the development costs over several years.

      That’s not going to happen now that sales are much lower than anticipated and they had to cut the price so much so soon. The 3DS isn’t selling enough for developers to risk trying to sell $50 game cartridges for it when they see day to day that they are making money selling iOS games with faster payback and reduced risk.

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  2. I don’t think Nintendo will die out, they need a really fresh product that brings great innovation to the table. The market has changed so much over the last few years its flipped the tables on what is standard. When Apple first released the iPad I didn’t think it would be that popular, and allot of people thought the same, but look at it now. Old ladies and 3 year old children enjoy them and happily use them for hundreds of different tasks.

    The DS was quite similar but it was restricted to games and usually younger people. The DS can bring so much more and it will be really interesting what Nintendo do next.

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  3. Werner Egipsy Souza Friday, July 29, 2011

    I agree. The main innovation now, will be around the business models where the focus is more on building the community of gamers, with cheaper software and using the analytics for targeting other markets.

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  4. I think Nintendo could be in a lot of trouble unless it innovates fast. The 3DS was too expensive, especially now that its become a +1 device as people want a smartphone first.

    Ultimately smartphone / tablet gaming is limited because it doesn’t provide the precision or control that a dedicated joypad does. Nintendo needs to figure out how to take advantage of this. Although some DS games like Professor Layton would be great on a phone/tablet, and I’m sure Level-5 are thinking about it.

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    1. @David – agreed, there’s room for innovation still in the gaming hardware market, and if there’s anyone that can still find “white space” here, it’s Nintendo.

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  5. Lindsworth Horatio Deer Sunday, July 31, 2011

    Finally, the Nintendo 3DS at prices mere mortals can afford. Apparently the 3D pizazz was not “wow”ing the enthusiastic hardcore gaming crowd. Too Bad cloud is the eventual future of Premium Gaming!

    http://www.geezam.com/console-gaming-downfall-future-is-up-in-the-clouds/

    This as Freemium Gaming model on smartphones means that handhelds will go extinct as smartphone’s proliferate.

    http://www.geezam.com/smartphones-and-apps-freemium-games-are-no-1/

    Nintendo fan, give me time to run, please….

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  6. I don’t think the terrible sales have as much to do with phone and tablet gaming as you seem to think. They released 3DS with nothing good to play, no eShop, no Internet, horrible battery life when using 3D, and a few other major problems. Those are more of the reasons people aren’t buying it I think. THE reason I wouldn’t buy one right now is the terrible battery life. The large majority of phone and tablet games are total casual crap. They have their place, but are not really the same market.
    I agree Nintendo has more competition for people’s money, but they really placed themselves in a terrible position with how they released it. I think they will end up doing fine. Nintendo always has something up their sleeves.

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    1. I bought nintendo 3ds and for me it lasted about 6 hours with 3d on, but as you mentioned its not many games for it, when super mario and mario kart gets released to it the sales might raise enormous.

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  7. Say goodbye to the DS. iDevices will put this out of business. If Nintendo is smart, they should be working on something that will compete with the next iOS TV device that Apple releases. Or perhaps Nintendo should create its own tablet.

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