Nintendo v. Apple

I was at E3 last week (was that just last week?) and attended two separate Nintendo events: the press conference where Nintendo talked about upcoming products, and an Analyst Q&A session where Nintendo executives explained Nintendo's strategy to a group of mostly financial analysts who looked grossly out of place at E3 (financial analyst types dress much, much better than the average E3 attendee). One of the things that struck me in the press conference is how much Nintendo is competing against Apple in mobile gaming, and one of the things I discovered in the Q&A session is how much alike the two companies are in their approach to product development.

The Wii portion of the press conference was confined to new exclusive titles; Nintendo has a tremendous amount of positive sales wind at its back and it doesn't feel the need to change the hardware at all. Short term I agree with them; over the past six months the Wii outsold Microsoft and Sony combined, and the $199 Wii has a decisive price advantage over the Xbox 360 plus Kinect (likely at least $299 for the Arcade version, and possibly more) and Sony PlayStation 3 plus Move controllers (at least $379). Nintendo doesn't need to do anything to the Wii this year, but it will need to overhaul the Wii in 2011 or 2012 to remain relevant as a majority of households have HDTVs and Microsoft can further cost reduce the Xbox and Kinect.

While Nintendo is leaving its console alone, it is making significant advances in 3D portable gaming. The 3DS extends Nintendo's leading portable franchise by adding a glasses-free 3D screen in addition to the 2D touchscreen on today's version. The 3D effect was excellent, though it does not work off-angle and it can be adjusted or turned off entirely. In my brief look, 3D did appear to significantly enhance gameplay, and the top screen can also be used to watch 3D content from Hollywood. Dual 3D cameras around back can be used to take 3D pictures, and the 3DS has been upgraded with an accelerometer and gyroscope to enable iPhone-style games. The 3DS still lacks cellular data connections, but its WiFi capabilities will include background connectivity to enhance gaming with interactivity and enable content downloads without user intervention.

I was extremely impressed with the 3DS; by providing a unique gaming experience it exemplifies how to compete against multifunction gadgets with a single-purpose device. The problem with the 3DS is simple: timing. Nintendo did not announce pricing or availability, though it did say it expects to ship the 3DS by the end of the fiscal year, or March of 2011. That would miss the critical holiday 2010 sales season, and gives Apple a chance to steal sales forward with the iPod touch, which is already a big hit among younger gamers. Worse, Apple is expected to upgrade the iPod touch line this fall, and a camera, gyroscope, and retina screen could all be part of that offering. Still, while Apple may erode Nintendo's total available market, there should still be room in the market for a general purpose multimedia device and one dedicated to unique gaming experiences.

During the Analyst Q&A session, I was fascinated by the parallels between Nintendo and Apple. Both have fairly rigid product development approaches, and rarely alter their plans in response to competitors. They both focus less on a piece of hardware than on creating a compelling and cohesive user experience thanks to a combination of software and hardware that are developed at the same time (surprisingly, this approach is actually quite rare in consumer electronics). In the games business, hardware and software are typically developed by separate companies, but Nintendo is fully willing to compete with its third party software developers and its own titles are the most significant part of its business model.

Of course, there are differences, too. Apple's reach is far more expansive, touching on computing, telephony, music, movies, and web services, while Nintendo has a laser focused on gaming. Apple is building multi-purpose devices and is now extremely dependent on its third party developer community for iOS apps. Nintendo's devices tend to be more focused (not quite single-purpose, but close) and while Nintendo pointed out that the 3DS has the best third party support it has ever seen for one of its platforms, that's an anomaly, not the rule. Both companies are extremely profitable, and while the first question of the day (mine) was around 3DS launch timetables, the second question was one that Apple frequently gets from the financial analyst community: what does Nintendo intend to do with all of its cash?