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?
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.
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?
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.