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How Nintendo Can Save Itself

Nintendo is hemorrhaging money on a flopped product and refuses to do the one thing that'll keep it afloat. Here are some ideas for how it could improve its bottom line, without selling out.

The Nintendo Wii console was a massive hit. The sequel which debuted late last year, the Wii U, was a massive flop. In turn, Nintendo is leaking money, and may soon be hemorrhaging it.

And that leaves Nintendo’s President, Satoru Iwata, answering to nervous investors, business-minded folks who see that Nintendo may have lost living rooms around the same time that the company is handing over the marketshare from its mobile Nintendo DS line to smartphones—and maybe more importantly, the unstoppable technological juggernauts like Google and Apple who rule smartphones today.

If you can't beat 'em, join 'em, critics argue. Just look at Rovio (makers of Angry Birds). Nobody knew about the Finnish developers five years ago. Today, they've distributed 2 billion copies of their game, largely thanks to iPhones, their omnipresent connections, and their lucrative in-app purchases. If stupid old Angry Birds can do it, why doesn’t Nintendo just release its iconic franchises, like Super Mario Bros, Zelda, or Star Fox to iOS? It’s tens, maybe hundreds of millions of dollars that could be made overnight, and surely billions in the long run.

But Iwata has put his foot down with a firm no. Nintendo won’t release its games, old or new, big or small, for smartphones, he’s said. Yet he concedes that the company needs to find some way to interact with the mobile market.

The good news is, Nintendo has $8.3 billion in assets (about $5 billion of which is cash). In other words, the company has a few years to create another hit product. So the question becomes, if Nintendo doesn’t want to give in to iOS and Android, what can they possibly do next?

Iwata Is Right

To rewind a bit, it’s important to point out that, as petty and controversial as Iwata’s anti-iPhone stance may seem, there’s a strong business logic guiding it—most notably, margins.

In many ways, Nintendo and Apple are very similar companies. Both have maximized profitability by creating their own popular combinations of hardware and software. A Nintendo 3DS or Wii U is the only places you can play a Mario or Zelda game, just like a MacBook or iMac is the only place you can run OSX or Aperture.

Historically, this peanut butter and jelly sandwich of hardware and software has allowed Nintendo to charge a premium on less costly, slightly less than cutting edge components, while keeping the full profits of the games the company has developed in-house.

Move Mario to the iPhone, and overnight, Nintendo hands over its platform-exclusive advantage, which makes its profitable hardware so enticing to consumers. At the same time, Nintendo would likely have to charge a bit less to compete with cheaper iPhone games, chopping a $50 game to, if the company was feeling bold, $20. Then, on each sale, Nintendo has to hand over 30% to Apple because that’s how the App Store works.

So put into simple numbers, a Mario game that might sell a million copies for Nintendo’s 3DS portable would make Nintendo $50 million. The same game, selling the same amount of copies on iPhone, would make Nintendo $14 million. Meanwhile, Nintendo becomes just another logo on stage at the next Apple event, lining the coffers of the company that ostensibly put it out of business in the first place.

The Android platform doesn't offer a more positive outcome for Nintendo, either. And in fact, it's hard to even speculate on Nintendo's profitability here, because piracy is so rampant on the platform, and Google doesn't seem to care.

So What’s The Alternative?

New rumors suggest that, despite Iwata's very recent, very firm comments against smartphone gaming, Nintendo might just make mini-game teasers for phones after all, intended to upsell you to the experience on a Nintendo system. Even if that happens, the question remains: What else could the company do with mobile?

Nintendo shouldn’t focus on mobile gaming; they should focus on mobile "experience"—yes, an admittedly ephemeral term, but one that's extremely relevant to Nintendo in 2014. It’s experience that’s always made Nintendo fun, whether that experience was blasting ducks out of the sky with the Zapper, bowling in your living room with the Wii’s motion sensitive remote, or scratching the chins of virtual puppies with a stylus on the DS.

Now let’s take that same lens of experience and apply it to smartphones and tablets. What experience could Nintendo do that’s not a game?

They could leverage the incredible connectivity of text messages, phone calls, GPS, and 4G internet. Maybe that means Toad calls you with news that Bowser has kidnapped Princess Peach (again??) or that your commute to work in real life inspires a custom course in Mario Kart. Maybe that means your phone chimes with the sound of a gold coin when you save 10% by checking in with Foursquare, and Link has the same plate of Buffalo Blaster Nacholators dropped into the game that you just ate TGI Fridays.

Wearables present a unique opportunity for Nintendo, too. Consider the space. It’s currently filled with health and wellness devices—Nike+ Fuelbands and Jawbone Ups—fitness bands that we wear on our person to track our activity and calorie-burning. (Sounds like a lot of fun). Iwata wants to compete in wellness. But what could wearable technology look like through the lens of one of the world’s greatest gaming companies and the lens of fun? Can Nintendo use peripherals to create a new experience in the world just like the company did in gamers' living rooms? And, with enough ingenuity, does Nintendo really need to look at iOS and Android devices as competition, or could those powerful platforms become as integral-yet-irrelevant, as commoditized to the experience as a television was to the original NES?

Focus On Experiences, Not Intellectual Properties

Within five years, Nintendo will either be a software company, or it will have launched another hit experience that we all just need to own for ourselves. Whatever that innovation may be, it will have to include the same marriage of software and hardware that made Nintendo so beloved in the first place. Nintendo needs to think beyond the Mario game and pin down what made Mario so much fun in the first place (SPOILER: It was the turtle shells), and translate that sensation to a world that’s never been more open to new technological experiences.

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  • Ways Nintendo can save itself.

    Release all pre GameCube games on iOS and Android.

    Released a new console: Wii U+.

    Double performance of previous generation.

    Stream to 2 Wii U Gamepads.

    Integrate 3DS into the family and release 3DS+.

    Wii U+ games stream to 3ds+.

    Wii U+ is 3D

    All + games 3D compatible with TV's.

    Gamepad is still 2d.

    3DS does 3D streaming from Wii u+.

    Original Gamepad is compatible with WiiU+.

    WiiU+ Gamepad now hi res.

    WiiU+ Gamepad has a port for 3DS games. Button press to switch between DS screens (no 3d)

    Launch Wii U+ with Metroid+, Zelda HD 3D+, f-Zero+.

    Keep old Wii U for a second room.

  • Jason Thompson

    There games don't belong on phones, They are a gaming company all they need to do is bring out games that people want faster. They will see a rise of hardware sales once they release a new Zelda game for the Wii U, when Mario 8 comes out and super smash bros. Also X looks like it will be a good game as well. Software is what sells hardware. If they put there games on phones then they will no longer be able to sell hardware, they would be selling Apples hardware instead.

  • Nintendo should save its self by making Friendship Cube games with webcams… enabling a new level of interactive visual tracking, hand-eye co-ordination, pattern recognition. These Nintendo games could teach valuable skills like memory, strategy, communication, navigation, teamwork, literacy, numeracy, and moral lessons through story telling. Nintendo could gain a huge market advantage by offering up a new level of graphic user interface and self-expression technologies via the Friendship Cube.

  • Quintus Greene

    There's a reason they just declared their openness to M&A, and it isn't to pair up with yet another software company. Nintendo is looking for the endgame: virtual reality. If they can improve on immersion, they'll do it, because they know that's where the Wii found success. If there's a company that can help them advance in that area, look for Nintendo to show interest.

    I think there's also a second endgame: console-less. If Nintendo can create a $50-$100 box with minimal power, which allows streaming games directly, like the recently announced PSNow (which doesn't even need the box), they'll be looking toward the future. Though broadband speeds aren't going to provide the kind of experience we want now, it's inevitable.

    Or they could just start making phones. They're the ones that made touchscreens popular anyway. The DS dropped a year before the ipod touch. Nintendo could succeed where Nokia failed. Good screen. Good controls. Optional subscription service for gaming.

  • Not too long before my generation moves beyond appreciating vintage Nintendo (my son has no time for it). Cash in now and use that to fuel innovation. $8 billion is a bunch of cash to spend with nothing in the pipeline. Nintendo has proven content and gadget appeal. I like your wearables suggestion. Maybe go open-source and make an interface/sdk that people can build around using 3D-printers....customize your own magic gadget used to cast custom spells. No more room for a console in my TV cabinet (or attic).

  • " just like a MacBook or iMac is the only place you can run ... iTunes." This is the first clue there is nothing relevant in this article/opinion. Though my experience with the ugly/bloated iTunes on Windows, maybe it really does only work right on Mac.