How Nintendo is Winning the Console War

The Nintendo press conference at this year’s E3 was one of the least energetic I’ve ever seen the company put on. Considering the amount of general excitement generated by the next-generation consoles being introduced at the show, it should have been the exact opposite. Last year, Nintendo reassured their fans that they were capable of designing competitive hardware by showing off the Nintendo DS, and the resulting sigh of relief from the Nintendo-friendly could be heard across the world. Sony’s PSP was in the process of leading an attack against Nintendo’s position in the handheld market, and the world needed to be reminded that Nintendo had more than just nostalgia pulling for it.

Nintendo won’t go like Sega:

In much the same way, Nintendo fans needed a pat on the back at this year’s E3, and they didn’t really get it. There’s a fear amongst many hardcore gamers that Nintendo isn’t staying competitive, a fear that’s not being helped by the competition. Both Microsoft and Sony have launched marketing campaigns that involve beating on their chests and grunting really loudly, and the result is a rather meek looking Nintendo that seems to have settled for third place. Many people think that there isn’t enough room for three home console makers, and this might be true; however, if a company disappears from the hardware market, it won’t be Nintendo.

It all depends on the video game statistics:

Nintendo is losing the console war in terms of the home console, at least if you count market share as the determining factor. The GameCube has a smaller user base than the Xbox, even though the difference is not nearly as significant as certain companies like to imply, and both are simply dwarfed by the user base of the PS2. When people think of game consoles, they think of the boxes that sit under your TV; handheld units are often taken less seriously because of their comparatively lower price. That’s really a mistake. When you consider the cost of development for a Gameboy Advance compared to the average sale price of a game, companies stand to make as much from releasing a $30 GBA title than they do from a traditional console game, since they cost less to make. That’s particularly important when you realize that the two systems competing for the number one slot are not the Xbox and the PS2, but the PS2 and the Gameboy Advance.

See the trees, miss the forest:

People tend to under appreciate Nintendo’s position in the market. It’s easy to do. We don’t see Nintendo introducing a lot of new hardware that is blowing the competition away, at least at first glance. Many hardcore fans, including friends of mine, were ready to nail the coffin shut on the DS the instant the PSP left the gate, but it was a mistake. Recent numbers suggest that the Nintendo DS, driven by key software sales, is selling better than the Sony handheld. This vindicates one of Nintendo’s key strategies:

• Nintendo targets the casual gamer.

Unlike Microsoft and Sony, Nintendo targets a more casual audience. If you check the online forums, the casual audience tends to be dismissed disparagingly by us hardcore gamers as “kids and women.” Mostly, that’s probably accurate. However, those kids - or their parents - and women represent an incredibly powerful driving force in the market, and are the reason that Nintendo has easily the largest market share when you look at the video game market as a whole, counting both handheld and home console systems. If you consider Japan, Europe, and North America, the Nintendo DS, Gameboy Advance, and GameCube combined push Nintendo into the position of number one console maker in the world.

More importantly, they make money at it. Unlike either Sony or Microsoft, who reported dismal returns either as a company (Sony) or from their game division (Microsoft), Nintendo earned more than 1 billion dollars in profit last year. That’s over double what Sony made in profit, and much better than Microsoft, which posted a billion dollar loss. Considering the money made from video games alone, Nintendo is the most financially stable console maker on the market. Instead of looking at the PSP and seeing it as a threat to Nintendo, perhaps we should look at it as a sign of Sony searching for additional markets under new pressure from Microsoft.