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Could The ‘DSi XL’ Harm Nintendo’s Image?

In September 2009, the Wii did something completely unexpected for the console – it was outsold by the Playstation 3. The most obvious culprit for this could be attributed to Sony’s price drop and marketing campaign. Instead of placing the credit on Sony, would it be more accurate to put the blame on Nintendo? The wand wonder recently received its first price drop to $199 in late September, but that could have been cutting things a bit close. But we aren’t here to specifically discuss the console war brewing in the far east, but what affect it’s having on Nintendo’s bottom line. It’s natural to assume the company foresaw this trend months in advance. Things lined up too perfectly to consider an alternative. Satoru Iwata is a smart man, and his company is in an unprecedented position since their first console. It’s only natural for them to want to maintain this success, but will launching the next next next DS be the best way to keep their products printing money? You can only retool a product every so often before people will start to wait it out.

All about the bottom line

To simplify my opening statement I’m considering the fact that the Nintendo Wii’s lack of a price drop was a shrewd calculation less than a necessary business decision. Wii production cost was just slimmed down 45% a few months ago. It could have come at any time given the margin of profit the company received on the landmark 50 million shipped consoles. The company’s sales have dropped 50%, a fitting statistic. Unlike Microsoft and Sony, Nintendo is banking heavily on its games division to meet their operating costs. The general plan being sell as many Wii’s as possible for as long as they could maintain demand. With a price drop currently in effect, their profit has to be ‘reimbursed’ from somewhere. That’s where the DSi XL comes in.

The DS platform is everything Nintendo wants the Wii to become. An infinitely renewable source of income with a solid library of first and third party titles. Until it becomes that, they’re willing to bank 50% of their profits on consumers willing to buy a new DSi. It’s not a bad bet, the DS has the track record to support it. Consumers seem to be willing to put up with constant retools to their favorite electronics. But what happens when the bet loses out? You don’t really get  second chance on the same platform. If the DSi XXL were to ship in Q4 2010, what would keep observant consumers from waiting it out for the DS 2, or their next wave of handheld? Without isolating your hundreds of millions of handhelds, Nintendo really doesn’t provide enough incentive to warrant an upgrade.

Risk Management

Nintendo loves money, but they hate piracy. There’s another reason why you could be seeing a bigger push for the ‘i’ portion of the DSi platform itself. For the moment, the DS and DS Lite are the most susceptible to hacks and modifications that open the platform to all sorts of alterations. Music, emulation, backwards compatibility, all possible on the earlier iterations. DS first and third party game sales are incredible, but they could be “more” incredible.

When you’re expecting your company to sustain  a substantial profit drop in an attempt to maximize profits, it pays to take a look at the things that might be keeping a few extra million dollars out of the share holder’s report. Launching a new DSi would further expand a growing market with potentially more protected DS, strengthening the company’s bottom line. At least on paper. You really have to gauge the risk vs benefits in the consumer mindset. Granted it’s not nearly is foul as the PSP Go’s predicament, and a much larger install base is more forgiving than a small one, but sooner or later something is going to give. It always does. Nintendo is aware of this all too well.

What is the plan here?

If you were looking at whose business model Nintendo seems to be following at this point, you would find that it would resemble a hybrid of Apple and Tamagotchi. A system based upon revision and internal innovation, yet marketed to a core group that is expansive only in the fact that new consumers will rise to replace the old. Apple markets to its everyone age group, and now so does Nintendo. Let’s face it, Nintendo built itself pitching its products to those who sunk quarters into arcade machines as if their lives depended on it. Those gamers migrated to Sony and Microsoft. If I were them I’d have felt a sense of abandonment too in the last generation. It’s only reciprocity which defines their decision to now cater to a wider market. One that, well, for lack of a better way to phrase this, is born every second. There’s always a new parent who walks into a store with a smile and a child, wondering which video game system to give their newly born gamer. Nintendo is not only there to cut the umbilical cord, but also provide them with a warranty.

By maximizing saturation with a newly released product, not only do they get the press working for them, but the electronic retailers and even the parents. “Not that old one honey, get the one that says ‘new’.” “Yes dear.” At the same time, a Nintendo faithful groans, sliding their DSi into their pocket they bought prior to the announcement, only to feel once again befouled by the company who had once delivered them into the world of gaming.

Still not buying it?

My argument, not the DSi XL. That’s fine. Nintendo has been down and out before, but they’ve also been top dog before as well. With their current way of thinking you’re better off sitting on the side lines. Consumers for whatever platform they ship won’t disappear overnight. But there’s not a whole lot stopping them from considering what exactly is the point? Buy it now, or buy it ten months later. Same price, new features. If this Nintendo Wii HD thing really turns out to be true, who’s really going to question the idea then?

1 comments
deftangel
deftangel

Nintendo have been eying the Apple iPod upgrade model for some time and the DSi XL is merely an example of them pushing further into that, from Gameboy Advance SP to the DSi itself. I don't think the Wii price cut has much to do with it. That system has been insanely profitable for them since Day 1 and they've simply ridden out the unprecedented demand as long as they can. At $199 they are still making a ton of money on each unit, especially if that 45% production cost reduction figure is true. Nintendo don't need to cross-subsidize their home entertainment and handheld businesses, they each stand up on their own two feet. What the DSi XL illustrates for me is that Nintendo are still struggling to react to the iPhone. We've known this for a year though, so I don't see it as new news. Having successfully disrupted both the handheld & console markets in the last decade, Nintendo should be masters at adapting when it is them that become the disrupted. Next year, we're going to find out.