According to VGChartz, the install base for both PS4/XB1 is around 81 million. At the same time, there are over 2.6 billion smartphone users who have an active subscription . The PC games market ($32 billion) also generates more revenue than mobile ($25 billion), with Steam having 125 million active users.
Taking all of these figures into account, with users already being well catered for in the living room, portable, and desktop gaming markets, then what purpose does Nintendo serve by bringing out ANOTHER system in the form of the Switch?
Surely these markets are already established and are being well catered to, as the lacklustre success of the Wii U has already proven (when Nintendo last entered the console market), whilst the Vita and Windows Mobile platforms also suffered (in the portable market).
Even the 3DS (65 million) hasn’t fared as well when taking into account previous portable gaming successes in the form of DS (154 million) and PSP (82 million) – both of which came out before the smartphone and tablet market really hit its stride.
From my understanding, the PS4/XB1, mobile/tablet, and PC/Mac markets all have extensively establshed eco-systems that cater towards both sets of casual and hardcore gamers (via games and apps), and are multi-purpose devices that offer the most appropriate tech in terms of what their primary usage is designed for (living room/portable/desktop). These platforms also have fully fledged ARM and X86 libraries that have considerable support, thus making games development really easy (and where developers also can draw upon the experience and knowledge of their peers).
With this in mind, I’m just trying to wrap my head around exactly as to what value proposition the Switch seems to offer, how it could be conceived as being part of Nintendo’s “blue ocean” strategy, and why the mass-market would consider wanting the console hardware when its needs are already being well catered for? In short, who would want the Switch apart from Nintendo fans who just want it for the company’s first party titles?
The third president of Nintendo, Hiroshi Yamauchi, famously used to argue for the company to “Forgo profits on the hardware. It is just a tool to sell software. This is where we shall make our money.” With this in mind, and given that the company recently posted a profit of $569 million as a result of its software endeavours – which largely stemmed from its first party releases on the 3DS handheld as well its third party releases on mobile (both hardware sectors which don’t require AAA development budgets) – then doesn’t it make sense for the company to consider becoming a third party developer in future, and utilise the already extensive install base of PS4/XB1 and PC/Mac, as well as capitalise on what it’s already accomplished in the mobile sphere? Because that’s where the profit potential is.
And if it does bother the company with regards to not having access to a “value added” gimmick piece of hardware, then why not just piggyback off existing eco-systems and just release them as a peripheral – ala the Guitars and Tony Hawk themed skateboard devices by Activision?
From my understanding, and with Nintendo going third party, it will have access to the following:
1) More powerful hardware: Despite what Nintendo fans want to believe, games do benefit from having access to extra power, as the Switch version of Zelda adequately demonstrates (in terms of frame rate etc). And even if the company doesn’t want more powerful hardware, that doesn’t mean that it won’t have access to it should the need arise. Indeed, for every AAA production like Zelda, the company could make 3-5 low budget “indie” games that are more in the vein of what the 3DS hardware is accustomed to in terms of development resources. In short, why limit oneself?
2) Bigger userbase: Due to rising development costs, franchises like Metroid and FZero have all been seen as being major sales disappointments after having been tied to (Nintendo) hardware platforms that have failed to meet commercial expectations. With this in mind, and if Nintendo were open to the idea of going third party, its niche IP releases would be able to leverage their inherent risk by having access to a wideer market. At the same time, this would allow mainstream Nintendo franchises to start selling in healthy numbers again (to the extent that these once again appear in the Top 10 All Formats Best Selling Titles of the Year List). Indeed, the market has clearly demonstrated that it is open to the idea of Nintendo becoming a third party developer as the company’s share price rose after it announced Super Mario Run for the widely popular iPhone market, and this was further proven when the game went on to generate $53 million in revenue. At the same time, its Fire Emblem Heroes game generated $2.9 million in first day sales after it arrived on both Apple’s and Google’s app stores on 2 February 2017. So why doesn’t Nintendo just port its games across to practically every platform, thereby having access to PS4/XB1, mobile/tablet, and PC gaming markets, all of which absolutely destroy the combined might of the 3DS/Wii U sales hardware combo of 78.86 million?
3) Extensive developer support: ARM / X86 are now practically the standard (depending on market) with plenty of porting libraries and options. Why not harness what is already available (including tried and tested engines like Unreal – which Shin Megami Tensei is being developed on), and benefit from the wealth of pre-existing knowledge and experience that has already paved the way for robust software development frameworks to materialise?
4) No hardwware R&D costs (incl marketing and support): As Hiroshi Yamauchi famously stated, hardware is just a tool to sell software. And irrespective of how one looks at it, the Wii U is deemed to be a major commercial failure, with only 13.56 million units sold. So much so that in 2014, investors were calling for the late Satoru Iwata to resign after they had grown tired of the company’s poor financial performance after its third consecutive annual loss. And even if Nintendo does have nearly 40 years worth of financial reserves, investors don’t really care so much about this as they are in the business of making money, not losing it. And did Nintendo really manage to generate a healthy amount of profit from its Wii U endeavour after all the effort that was sunk in – especially with regards to the lack of third party support and software license fees (as was the case with major publishers like EA), disappointing first party sales performance (like the sales bomb that The Wonderful 101 and Bayonetta 2 both represented), as well as the additional costs geared towards the Wii U operating system’s upkeep? Because if it did, then investors wouldn’t have lost faith in Satoru Iwata’s ability to lead Nintendo, with the fallout being that the enormous pressure and stress that Mr Iwata found himself most likely contributed towards his death as a result of cancer.
5) Price: With the Nintendo Switch being slightly less powerful than Microsoft’s XBox One, there’s a reason as to why games for the Switch cost £60 as Nintendo needs to recoup its already extensive development expenses and investment. But if Nintendo had a larger userbase to sell its games to, then the games could come down to more realistic levels of £30-45. Indeed, even if Nintendo were to sell its games for a price that was above market expectations (as is the case with Super Mario Run and Square Enix’s own Final Fantasy games on mobile), then surely the company would be able to generate even more of a healthier profit as a result of having access to a larger userbase.
To conclude, the commercial success stories of Pokemon GO, Super Mario Run and Fire Emblem Heroes have all proven that Nintendo can make incredibly profitable software ventures whilst operating in a third party capacity, and where its games have healthy attach rates. And despite Nintendo president Tatsumi Kimishima’s bullish claims that the Switch will emulate Wii’s 101 million sales success, it’s hard to imagine the Switch faring anywhere near as well when Nintendo’s fans approximate the best case scenario of only 78.86 million users, whilst assuming that there is no overlap between the platforms and that every Wii U and 3DS hardware unit is still in active use. At the same time, that’s assuming that no one was burnt by their Wii U purchase, as many have clearly indicated that they are either forgoing the Switch, or are waiting to see as to how it fares before committing themselves towards the platform.
Assuming that every Wii U and 3DS owner is however satisfied with their purchase, and with a best case scenario of 78.86 million returning customers, this number is already being dwarfed by the sizeable 81.75 million PS4/XB1 console userbase (which is the same sector that the Switch is being marketed towards) and which has shown a greater uptake in roughly half the time (3 years) – as opposed to the Wii U (4 years) and 3DS (6 years) combination respectively. At the same time, the PS4/XB1 userbase has grown by 22.14 million units over the previous generation PS3/XB360 console combination within the same 36 month period, whilst Nintendo’s current slate of 3DS/Wii U hardware has actually lost 176.79 million users after its previous DS/Wii generation.
Given Nintendo’s desire for wanting to operate in blue ocean markets, and given the commercial risks associated with developing its games on current gen level hardware (sub-XBox One to be exact), why then does the company limit its games’ sales potential by having them behind the Switch hardware paywall? Doesn’t it make more sense to develop for the already established PS4/XB1 userbases as these would most likely yield far healthier sales revenue? And this is before one even considers further porting options such as desktop and mobile platforms. At the same time, what hope does Nintendo even have of attaining respectable Switch hardware sales numbers when recent competitor attempts at wrestling control from the already dominant console/mobile/desktop industry players have all failed so spectacularly – including Nintendo with its own Wii U?