Thursday, November 14, 2013

The idea that Nintendo doesn't need change is utter nonsense

Opinion by Matt S. 

Recently, Gamesindustry.biz published an opinion piece that looked at the state of Nintendo and frankly, it was terrible. The crux of the argument was "Nintendo was once the bee's knees of the games industry, and even though it doesn't sell as much stuff now as it once did, it's still making fun games and it's going to be fine doing what it's doing."

If it was some random blog that published that, then it would have been easy enough to ignore; clickbait opinion is a common enough feature of enthusiast games press. But Gamesindustry is meant to be an industry publication and the writers over there are meant to be more interested in reporting business-orientated analysis and guidance rather than stroking fan's egos or engaging in schoolyard rhetoric.

So, since the supposed trade press don't want to discuss this issue properly, I might as well pick up the baton; the reality is that Nintendo is in desperate need of change (if it isn't already too late to do so). While we all want to see the company thrive because, like Disney, our childhoods are wrapped up in growing up with the products Nintendo provided, crossing fingers and praying for the best doesn't save corporations in the really real world.

I was recently talking to Gartner Research Director, Rand Leeb-du Toit, for a feature I was writing for a executive business magazine. Obviously we weren't talking about Nintendo, or the games industry in general, but we were talking about general business strategy, and specifically how new technologies are disrupting old business models.

Because military strategy and business strategy are frighteningly similar at times, Toit uses an analogy that resonated strongly with me; where once armies would build up solid stone fortresses around key assets and prepare to take their enemies on in the open, modern military strategy is about taking on decentralised cells and enemies that are often unseen. Similarly, where once in business you would know who your competitors were, and could build products and unique value propositions to combat them, these strategies no longer work. Competition can spring up from anywhere and completely disrupt traditional business models; for instance, the car industry likely never considered that it would need to compete with the guy who started up PayPal (Tesla Motors, headed by CEO, Elon Musk). There was no way the heads of the traditional manufacturers could have thought that they would have to contend with the leadership style of someone who starts up Web businesses. But ask anyone in the auto industry now and they are indeed all scrambling to deal with this upstart.

Or for another example - traditional media was slow to recognise the rise of digital media and now it's truly struggling. One of my clients that I write reports for collects advertising data, and though I can't give numbers due to being under NDA, I've seen directly the impact that digital media has had on traditional media, and it's not pretty.

In almost every case, quality isn't enough when a disruptive new product comes along. There are plenty of very fine cars being made that aren't electric. There are plenty of very fine media publishers and newspapers, magazines, TV networks and radio stations out there. They're still struggling. Those businesses that have been hit by a disruptive force have adapted to that by changing the fundamental way they do business, and are once again successful because they have been willing to make that change.

To us an example close to home for Nintendo - consider Lego. A very fine, traditional company that had a wonderful business in delighting children (and, frankly, most adults), with little plastic toys. Then it needed to find a way to remain relevant in a world where children and games were using technology increasingly heavily and deriving more and more entertainment from digital experiences. Lego has since built a fine digital presence and has come up with new product lines that take its toys where its consumers are at - for example, the partnership with Minecraft, as well as the online features of its website and various iPad and iPhone apps.

To go back to the discussion I had with Toit, his advice for businesses was quite simple; they need to be comfortable in a constant state of change given the speed in which modern business operates, and be prepared to be innovative as a business in order to counter not only the traditional competitors, but also the new models of business that are being brought into their space.

Nintendo is not doing this very well. It's been slow to adopt Cloud functionality into its devices (the 3DS is only now finally getting MiiVerse, and consumers are only now going to be able to use the credit on their 3DS eShop account to buy Wii U games... and even then the purchases are still locked to a single console). It has been very slow to understand the disruptive influence of smartphones and tablets, and the new pricing models that those devices have brought into the games industry.

It's fine to adopt the attitude of "we're not going to compete with the others in this industry, we're going to do our own thing," but that only works if what you're nicely small company with a captive market that is happy to pay a premium for the unique content that you're offering. A company like Slitherine is able to charge people $20 for an iPad game (that isn't XCOM) and remain sustainable because literally no other small-to-mid tier publisher is out there providing grognards with grognard games on their iPads.

Nintendo isn't a small company. It's a multinational corporation and that means that selling niche interest products are not going to sustain it indefinitely (do some simple maths - when a company costs billions to operate, just how small can your audience be compared to what can sustain a company that only costs millions to operate?). Can you think of another single multinational corporation that survives on selling products to a tiny group of hardcore fans? No, didn't think so.

That is ultimately Nintendo's problem. It's not that the company doesn't provide very fine products (because it does, and while I'm sure there are going to be Nintendo fans that will not read this far before throwing abuse my way in the comments section, I buy just about everything Nintendo produces for a good reason - it DOES create great products). It's not because Nintendo doesn't "market" enough, and it's not because you don't see Nintendo advertisements on TV - anyone with an understanding of marketing quickly realises that this isn't Nintendo's problem either and that marketing isn't a band aid solution that can manufacture a success out of a sinking stone.

No. Nintendo's problem is that the spirit of business innovation that drove it to take a risk on video games when it was previously busy selling card games to the yakuza is long gone. It is now completely fearful of making any meaningful changes in the way it approaches the market, and what's left is an incredibly conservative business that either believes its primary competition is still Sony and Microsoft, or, worse, it believes it doesn't need to compete with anyone at all.

- Matt S. 
Editor-in-Chief
Find me on Twitter: @digitallydownld
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