As you may have heard, Nintendo just announced their first-ever annual loss. As the quote from analyst David Gibson reads, “They have been beaten by smartphones and tablets, in particular, for consumers’ spending and, more importantly, time.”

Whether or not Nintendo CEO Satoru Iwata ever referred to Apple as “the enemy of the future,” the sentiment is sound — casual gaming, so recently the key to Nintendo’s “blue ocean” strategy, is increasingly an iOS affair. And having all but abandoned the “hardcore” gaming market this past generation, Nintendo is left with very little room to maneuver.

As I see it, Nintendo has three options; and none of them easy. The first and, I believe, worst solution is to abandon hardware and transition to becoming a software-only company. It’s true that gaming properties like Mario, Zelda, Donkey Kong, Metroid and Pokémon are probably Nintendo’s best assets and could sustain a substantial game company. But without the hardware platforms along for the ride, I doubt software alone could fuel the Nintendo we know today. That way lies diminishment, and should be regarded as a last resort. Sega serves as a strong warning against this approach.1

The second, slightly better plan is to confront the Xbox head-on. In fact, Nintendo has hinted it may be looking to do so with the beefed-up graphics capabilities of the Wii U. But graphics are a technology problem which is relatively straightforward to solve. Nintendo’s real handicaps against Microsoft are cultural: Nintendo does not value developer relations or online connectivity and Microsoft does. Core gamers want expansive third-party libraries and dead-simple online multiplayer; and Nintendo has a long track record of failing badly at providing either with its platforms.

The third option open to Nintendo is the most interesting and the riskiest: go after Apple on its own turf. Create a true, standalone tablet device that takes advantage of Nintendo’s strengths. Such a device — call it the “Nintendo iDS” for fun — would certainly require a world-class browser and support for the usual mobile standbys (like text messaging). But unlike the iPad, the iDS would feature integrated buttons and analog circle pads to make even the most “core” of gaming experiences possible.

It may sound crazy, but it’s not so far from what Amazon is attempting with the Kindle Fire. And Nintendo has a few tricks up its sleeve. As with the 3DS, it could design the iDS with a 3D screen and slider. (I’m not big on 3D in general, but if it makes sense anywhere it’s on a gaming platform.) Games could be temporarily shared with non-owners for multiplayer matches, as Nintendo already allows on its handhelds. But more than anything else, the iDS’ big feature would be one-tap access to both classic and brand-new titles in the Mario, Zelda and other franchises.

Do I think Nintendo will actually try to produce such a device? No. Nor do I expect them to get over their cultural handicaps or transform into a software-only developer. Nintendo will stick to its console hardware guns as long as it can; and it has the cash to be stubborn for quite some time. But the gaming industry is changing dramatically. Sooner or later, Nintendo will have to change too.

  1. We need to forget about Nintendo games on iOS, and not just because Nintendo would regard it as a humiliating failure. Mario without buttons is just Canabalt in the Mushroom Kingdom. The franchises we love would be neutered in the conversion.


April 26, 2012