Nintendo’s history with games has been a long and rocky one. Throughout their years in the industry they have gone from being the clear front-runner to the verge of death, and back again. Currently Nintendo seems to be on an upward swing, with the very successful launch of the switch. However, the success of the Switch doesn’t mean that Nintendo hasn’t made a number of stumbles recently.
Today, I want to take a look at these stumbles more closely, and try to figure out what is really going on. Is Nintendo simply making horrible business decisions, or is it all part of some bigger plan? Perhaps it’s a little bit of both. To find out, I want to take a look at Nintendo’s “shortage strategy”, their decision to continue producing hardware, and other baffling business decisions they have made over the years.
Drawing the Short Straw
One of Nintendo’s biggest and most baffling business moves in the last few years is their decision to seemingly never produce enough product to meet demand. This can be seen with the constant under stocking of Amiibos, the NES classic, the Switch and, most recently, the SNES classic. All of these products had (or have) issues with limited supplies not meeting up with consumer demand. On the face of it, this seems to be a terrible business decision – if your customers want to buy your product, why won’t you let them? But is it really this cut and dry?
First, let’s take a closer look at one of the most recent and egregious examples of this – the NES classic. This device, which is a minature version of the original NES with 30 built in games, had a lot of hype behind it. Whether from older gamers wanting to relive the nostalgia of their youth or newer gamers wanting to play these classic games that they have never had the opportunity to play before, consumers couldn’t get enough of the NES classic.
Literally – they could never get enough. This console sold out extremely quickly, which made it extremely rare and difficult to find. Consumers waited in long lines only to be told that it was all for nought. Not only were they impossible to find, but Nintendo made it very difficult to know where or when they would be available. There was so much unmet demand that these devices, which had a retail cost of $60, were being sold on Ebay for over $300!
One could chalk up an initial shortage to a simple miscalculation of demand. Basically, Nintendo may not have realized that so many people would want an NES classic, so they didn’t produce enough. If this were the case, presumably Nintendo would realize that the demand was actually much larger than they had anticipated and produce more product to fill the gap.
Another possibility is that Nintendo purposely created a shortage at first to create buzz and demand for the product. Once again, if this were the case, then producing more consoles after the demand had risen high enough would fill this demand and presumably result in strong profits for Nintendo.
So what did Nintendo do? Did they immediately started manufacturing more product, selling gangbusters? Unfortunately no. In fact, they announced that they would be ceasing production entirely, around the same time that they announced the newer, more expensive SNES classic. Why would they do such a thing?
One possible explanation is that the NES classic was simply Nintendo testing the waters of how the market would accept a retro gaming console. Once they realized how popular it was, they could have made the decision to discontinue the NES mini in order to sell more of the more expensive SNES classic instead.
Or perhaps they are simply playing the long game. According to digitalTrends, Nintendo recently announced that they would be producing the NES classic again in 2018. Perhaps it was their plan all along to make more consoles, but they announced the discontinuation in order to continue to build demand? Whatever their reasons, the launch of the SNES classic makes it clear that Nintendo is not planning on changing their strategy anytime soon.
Personally, I can only speculate at what Nintendo’s motives might be with these perpetual product shortages. However, something about their actions leads me to believe that they do in fact have a plan. If they are using these shortages as a marketing tool they would be far from the only company to do so – Apple, for example, often has limited supplies at the launches of new Iphones to help build buzz and demand. Either way, I think there is a fine line between creating demand and alienating your fans, and with these decisions Nintendo may be on the wrong side of that line for some.
The Hardware Dilemma
When I think of Nintendo, the first thing that pops into my head are the bright, colorful faces of it’s many iconic characters. From Mario to Link, Samus to Kirby, one thing that Nintendo certainly doesn’t have a shortage of is great, iconic characters and franchises, and it is these franchises that form the backbone of their business. Nintendo’s catalogue of games and characters dwarfs that of Microsoft and Sony in both size and popularity. With all of that said, it almost makes you wonder why Nintendo even bothers making their own consoles in the first place!
After all, consoles aren’t traditionally the most profitable of devices. According to Investopedia, most consoles are sold at a pretty severe loss for at least the first year, hoping to make up the gap through game sales and subscription services. This model holds true even in the current generation – according to BizJournal, both the Xbox one and PS4 were produced for only slightly less than their sale price, and once you take additional costs such as shipping it is likely that these companies were still taking a slight loss on each console sold.
For most of Nintendo’s history, they didn’t follow this model. Instead of competing with Sony and Microsoft for being the most powerful console, Nintendo mostly focuses on selling their hardware at a lower price point than their competitors, and traditionally makes a profit right away on each console sold. This is possible because Nintendo’s consoles are traditionally much less powerful than the competition, which means that they can be produced at a much lower cost.
Recently, however, Nintendo has not been following this model as strictly. Recently, the Wii U was initially sold at a loss. This was likely due to Nintendo’s need to keep an appealing price point well below it’s competitors. Unfortunately, the Wii U sold very poorly which meant that, even though Nintendo was eventually able to make a profit on a per-console basis, it was not nearly enough to make up for the lack of sales, leading to severe profit losses.
With the release of their newest console – the Switch – Nintendo changed their tune, once again making a profit from the very start. Nintendo took such a hit from the Wii U that if the Switch didn’t sell well, the losses from these unprofitable consoles sales could spell the end for the company. This forced Nintendo to produce and sell the Switch at a price that was both profitable and competitive.
The Switch had a very successful launch, driven in large part by the success of Legend of Zelda: Breath of the Wild. This helps illustrate another very important point – even when Nintendo’s consoles do sell well, that is usually due to the software, not the hardware. Nintendo’s consoles are usually severely under powered compared to their competitors, but players are willing to forgive this because it is the only way they will be able to play the latest Mario, Legend of Zelda or Smash Bros title.
But what if Nintendo gave up producing their own hardware, and started working as purely a software company? Yes, they would have to give up some profits from the production of consoles, but the upside of being able to sell their games on multiple different consoles would likely more than make up for this. It would also mean that they would no longer be limited to developing games for their low powered hardware. Can you imagine playing the next Smash Bros game on a PS4? That would be awesome!
Although it seems to make business sense, I really doubt that Nintendo will make this switch any time soon. The reasons for this is that Nintendo seems to value one thing far more than money – control. Giving up hardware would mean that Nintendo no longer has complete control over the capabilities of the machine, and they cannot control what games get played on it.
If you can rely on Nintendo for anything, it’s that they will be different. Nintendo is constantly leading innovation in gaming, whether with touchscreen technology on the DS, motion controls, asynchronous gameplay on the Wii U, or a home console that also functions as a handheld. While Nintendo’s hardware may not always have the fastest processors, they always have some unique Nintendo twist. To them, giving up hardware means potentially giving up on this type of innovation.
The other major concern for Nintendo is that they have cultivated an image as a family friendly gaming company, and they want to maintain this image. By producing hardware, they have absolute control over what games players are allowed to play on that hardware. If they became a software only company, their games would be on the same machine as other games containing extreme violence and other, less family friendly things.
Personally, I find both of these fears to be overblown. While Nintendo does lead the charge in innovative hardware components, in many cases these components are not the core of the experience. I almost never use the 3D feature on the 3ds, and when playing the Wii most of the time I simply hold the controller sideways instead of using the motion controls. While these options can be fun novelties, in most cases I think that they would be better suited to an optional peripheral instead of a main component of the hardware.
As for affecting their image as a family friendly company, I don’t think they have anything to worry about. Consumers are savvy enough to keep their gaming experiences separate, and having a Mario game on the same console as GTA is not going to reflect negatively on Nintendo at all. After all, people use the same device to watch Game of Thrones as they do Disney, and it hasn’t done anything to affect either of their reputations.
Two Steps Back
These two business decisions represent some of the more egregious of Nintendo’s questionable business practices, but they are far from the only examples. From lagging behind on the switch from cartridges to cds, to the fact that they are still struggling to develop their online services, Nintendo has fallen behind the market in many ways. Luckily, they have been able to keep up in the way that matters most – the games themselves.
As long as Nintendo continues to crank out critically and commercially successful first party titles such as Legend of Zelda: Breath of the Wild, Pokemon Sun and Moon, or the upcoming Mario Odyssey, it is possible that no amount of business fumbling will be enough to take them down. While I hope that Nintendo can stop lagging behind the market and change with the times, it doesn’t mean that I’m not going to play their games. And at the end of the day, isn’t that what it’s really all about?
Until Next Week
That’s all I have for today. I hope you enjoyed today’s article examining some of the more questionable business decisions of one of gaming’s most enduring companies. If you did, you can subscribe to the blog here on WordPress, Facebook, or Twitter so you will always know when I post a new article. If you didn’t, let me know what I can do better in the comments below! And join me next week, where I will be looking at the “collectible” portion of “collectible card games”.
Community Question of the Week
This is the portion of the article where I ask for your feedback from this week, and get your thoughts on future topics. I really love to hear what you think!
1. Was there anything I missed in my examination of Nintendo’s bad business decisions?
2. Are there any other companies or games that you feel have been mishandled that you would like me to look at?
3. How do you feel about the collectible nature of collectible card games? Does it enhance the fun, or do you think it’s just a cynical business decision?
2 replies on “Does Nintendo Hate Money? An Examination of Recent Business Decisions”
Sometimes I think they do.