Nintendo Case Study

The advent of the smartphone age has heralded a plethora of new and ever advancing forms of gaming and technology. Gone are the days of the simple hand-held video game console that could only contain one game in basic 8 or 16-bit screen displays. In those days, the user had to replace individual cartridges should they wish to switch out to a different type of game. In the modern age of dazzling technological advancement, there are a dizzying array of games to choose from and the storage capacities for the modern gaming console has increased by a hundredfold.

With such stiff competition from mobile phone and other console developers, how can a traditional video game console company such as Nintendo compete in today’s market? While Nintendo was a powerhouse in gaming during the late 1980s - with the introduction of the handheld Gameboy - and into the early 2000s, it started to lose much of its competitive edge with rivals like Sony and Microsoft rolling out higher end spec consoles. These machines were created to target an ever increasing demographic of users who were in the market for higher definition graphics, a more immersive game play that featured characters and environments that looked more like the real world.

On the other hand, Nintendo has always focused on having a user friendly interface, targeted mostly at young children (with games such as Super Mario and Donkey Kong), with little technical skill needed to play the game. Nintendo thrives on the nostalgic, released modern updated versions of the old favourites from the 80s; Mario Kart on the Nintendo Wii console being the best example. In a bid to remain competitive, Nintendo released the Nintendo Switch, a hand-held console earlier in 2017, which according to Nintendo themselves, ended up being the company’s fastest selling console system in the United States in its launch month. Nintendo’s nostalgia strategy came into play again as the Switch was launched together with a new title in the company’s widely beloved The Legend of Zelda series.

In terms of maintaining its competitive edge, Nintendo has shifted its focus onto collaborating gaming between multiple people working together in real life, evident from the massively popular Pokemon Go release in 2016. At the same time, Nintendo has invested heavily in the augmented reality (AR) technology, incorporating it into Pokemon Go to give users the sense that they are catching pokemon in a real world environment. This formula has proven to be a hit as figures from mid-2016 showed that Nintendo shares climbed 86% as a result of the popularity of the game and an estimated $15 million was added to the company value in a week.

Nintendo is clearly still in it to capture a large share of gaming consumers, however, betting on nostalgia alone is not enough and ultimately Nintendo has fallen behind to Sony and Microsoft in an age where users demands and preferences can be fickle as consumers move from fad to fad. According to market research conducted in 2016, Sony dominated the 57% share of the gaming market (hardware, software and services) and this figure equates to about $19.7 billion of consumer spending.

With the smartphone market booming, the competition has intensified between smartphones traditional video game consoles manufacturers. While it is common for video game console owners to also own smartphones, it is less likely that these same people would own differing consoles as people tend to pick what is familiar and stick with it. Additionally, mobile phone games have more technical restrictions in terms of graphics capability and other hardware/software related specifications. This enables Nintento to hold onto a share of consumers who are in the market for its consoles. Nintendo’s nostalgia strategy also serves as a double edged sword.

Whilst there might be an over-saturation of mobile phone games available, Nintendo would still be able to capture its loyal base of consumers who crave the Nintendo games that are otherwise unavailable on the mobile platform.

However, in the comparison between consoles, Sony stood out as the clear front-runner with the sales of its Playstation 4 (PS4) hitting approximately 53 million consoles in 2016, compared to only 27.6 million for Microsoft’s Xbox One. In terms of market share for 2016, Sony’s PS4 managed to capture 51% of the gaming console market, with Microsoft’s Xbox One coming in second at 26%, and Nintendo’s handheld 3DS and its variants trailing far behind at only a mere 8% of the market share. There is no doubt that Sony and Microsoft collectively pose the biggest threat to Nintendo’s competitive edge with Nintendo falling far behind.

Sony and Microsoft have capitalized on engaging 3rd party software development companies to aid in the conception of their games, whereas Nintendo’s best sellers are generally first party games and not a lot of 3rd party software companies develop for the Nintendo system.

The gaming industry is constantly evolving in a bid to satisfy the needs of consumers who are looking for more high tech advances in gaming i.e. virtual reality headsets, better multiplayer games that connect people from all around the world, motion sensors included into gameplay, etc. Nintendo has struggled to catch up as they are slower to roll out advances in software and a variety of new games. They constantly being beaten to the punch by Microsoft and Sony, who have now begun the introduction of streaming subscription services on their console to further strengthen their position on the consumer market.  Additionally when new software is rolled out, Nintento is quickly beaten back by its competitors who have an edge over the former in terms of better software and hardware capabilities. Long gone are the heydays of the 80s and 90s when Nintendo was the world leader in gaming consoles.