Fight or Flight? The future of Nintendo's 3DS

An online debate with a friend sparked a thought that has been rattling around in multiple business spheres lately as companies begin or continue to emphasize resource and portfolio management due to the effects of the last recession and the fear of a double-dip.  As markets dip and company profitability is questioned, investors clamor and cry for management to make tough decisions by reprioritizing their resources.  This often results in the Bob's getting involved to validate the value of all the pieces of a business; which includes headcount, products, services, systems, and leadership.  Sadly, the result is often workforce reduction, closure of once high potential products, and/or budget cuts.  Investors and leadership understand that this is part of the natural order of a business as the market ebbs and flows and companies are forced to pivot in existing market opportunities and/or add adjacent products and services to their portfolio to achieve growth.  Periods of growth are inevitably followed by periods of contraction, and then ideally the cycle continues with revitalized growth.

That is the concept depicted by the S-Curve.  All companies fight the battle to minimize and avoid the contraction that comes as existing products and services commoditize due to increased competition and disruption.  They typically do this through invention and innovation.  Invention by the creation of new products and services.  Innovation by the application of new ideas that generate incremental revenue and profits.  And many companies use the build, buy, and/or partner model to achieve the next level of invention.  The success of their build, buy, and/or partner model is dependent on how well the company listens, integrates, and adapts to the market's consumers, i.e. "innovates."

However, as companies fail to effectively build, buy, and/or partner to achieve invention and innovation breakthroughs, companies are faced with the tough situations mentioned above, so what is the best option?  Really only three options exist... to milk the cash cow, double down on re-invention, or prepare to kill the business.  These are the hard core decisions that keep leadership up at night because they affect thousands of workers and often billions of dollars.  This is the decision that Cisco recently faced with the closure of Flip, the reorganization of its consumer businesses, and the recent workforce reduction.  Did John Chambers really want to layoff workers? No.  But, a stagnant stock price, increased pressure in routing and switching, and a struggling consumer products line forced his hand.  Meritted or not, investors were betting against Cisco's ability to innovate.

Now to the headline... is Nintendo now facing a similar decision in one of its core businesses?  Nintendo's wildly profitable mobile gaming handsets have historically been the leader in mobile gaming technology.  For years Nintendo pioneered and innovated in the market providing hit after hit from the original Gameboy to the DS.  However, the recent "invention" or line extension with the 3DS handheld has left consumers and investors wanting.  The poor showing comes from the sad fact that 3D technology is still more "invention" than "innovation" with difficult and varied user experiences that don't inspire consumers to purchase or pay premiums.  Also, the proliferation of smartphones and the innovative ability to provide a standard platform for both the creation and sale of gaming applications has completely threatened the fundamentals of the once stable gaming marketplace. 

While dubbed a game of telephone in which a minor note from a large investor turned into wild speculation.still Nintendo faces the age old question that all companies face in periods of missed innovation and contraction.  Nintendo must face the harsh reality that dedicated mobile gaming devices are now a niche business. 

As listed above Nintendo has a few options available... they can fight like dogs and continue to sink money into a bottomless pit of invention to try and come up with a utility mobile device that can compete with the other multi-use smartphones.  It would only take at least 2 years minimum in product development and testing, and require the development of better-than-par marketplace and software developer partnerships.  But we see how well that strategy is working for Sony, Nokia, Microsoft, and RIM. 

Or Nintendo can purchase or partner with a large social game developer like Zynga for a godzilla amount of money (no pun intended).  They may also just start developing games for the new mobile platforms, taking advantage of the mass market opportunity.  They have a fair amount of cash, so these are all possibilities.  But, this only offers an opportunity to compete on the disruptor's playing field and does nothing to help the mobile hardware problem at hand. 

Lastly, Nintendo can ride out into the sunset with its head held high.  This is ultimately the route that Sega took, deciding to milk whatever they could from the Dreamcast and stay active in the markets they could remain innovative in, software and coin-op.  Now, when was the last time we saw a REALLY innovative Sega game?  A long time, but that begs a different topic... talent retention.  So the only option left for Nintendo is to do the same.  Nintendo has to face facts that the moment they let EA, Square Enix, and other game developers and publishers out of their grasps, the more innovative (not the most inventive) platform took the lead.  Is there time for Nintendo to get back in the game?  Yes.  Do I think they will win?  Sadly, no, but I can hope... my boyhood days of hours with my Gameboy is rooting for them.

The question I leave is no different than the above.  The gaming market is experiencing a massive transition point as invention of cloud-gaming possibilities (OnLive) and convergence of multi-use hardware becomes commoditized.  So that begs one only to ask... is the main-stay console next?  Watch your back Wii...only time will tell.

Talking to the Bobs



Office Space
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Bob's Reference...for those that don't want to link to it.