Originally Written: 1/31/13

Title:  Nintendo Lowers Forecast for Wii U Sales

Source:  Tabuchi, Hiroko, NYTimes.com (January 30, 2013) http://www.nytimes.com/2013/01/31/technology/nintendo-warns-of-weak-wii-u-sales.html?ref=technology&_r=0

Summary:  After only two months since the initial release of the Wii U game console, the newest device from Nintendo, sales projections have fallen due to lack of market response.  Nintendo hasn’t launched a full gaming system since 2006 when the revolutionizing Wii entertainment system brought Nintendo back into competition with Microsoft’s Xbox and Sony’s Playstation. 

Nintendo’s latest numbers show almost a 30 percent decrease in projection of units sold, from 5.5 million to 3.06 million. 

Analysis:  Personally I’m not much of a gamer and haven’t purchased a gaming console since the original Nintendo.  However, Forbes projects that the global industry will increase from $67 billion in 2012 to $82 billion in 2017.  If Nintendo cannot capitalize on this future growth projection, based on their pipeline of product launches, a new business model should be addressed. 

There are two major business impacts that are significant for Nintendo.  The first is loss of network effects as outlined in Chapter 6 of the textbook.  When Nintendo introduced the Wii system they were expanding by redefining the market.  At that time they saw an opportunity in an untapped market and seized the opportunity to capture demographics that weren't traditionally targeted by the gaming industry.  As one of the first gaming consoles they've had a loyal following since the original Nintendo.  However, underperforming sales indicate that either a new market was not reached, previous users did not welcome the new product, or a combination of all of the above.    

The second major impact the drop in sales indicate is changing trends in consumer behavior.  When Nintendo launched their handheld gaming system, the 3DS in 2011, sales also did not reach forecast.  Instead of taking the research learned from the subpar launch, Nintendo is choosing not to respond to consumer’s shift in preference to gaming on smartphones.    

As CNET pointed out in another article on Nintendo’s performance, “Nintendo dealt with a similar issue when it launched its 3DS in 2011.  However, the company was able to boost demand and increase sales with a price cut.  It appears that, for now, Nintendo won’t follow that plan with the Wii U.” 

Overall I believe there is still room in the market for new products from Nintendo but not how they have recently been introduced.  First, I think they need to focus on the consumer and find out what types of product they want, not what Nintendo thinks they might want.  As outlined above, Nintendo did an excellent job of finding new consumers with unmet needs when the Wii system was launched.  Nintendo can capitalize on that success again if they create products people want. 

Second, I think Nintendo should take a look at the mobile app industry and test the waters in creating a product available on the majority of smartphones.  Developers could create a product that Nintendo could test on iTunes and Google Play for a fraction of the cost it takes to develop an entire console system.  Nintendo could charge a small premium (or even download for free) and test the success.  If the app was a success they could look at new opportunities and if the app failed they would know not to proceed in that direction.  In today’s interconnected ways it’s critical that companies develop complementary goods that have the opportunity to extend to the masses.