”As disruptive attackers follow their own sustaining trajectories, they make inroads into the low end of the market or begin pulling less demanding customers into a new context of use. What happens when the disruptive entrant begins to make inroads? A good way to visualize what incumbents can do when faced with a disruptive attack is to consider how humans respond to a perceived threat. Our body immediately reacts. We produce adrenaline. Our heart rate goes up. Our respiration rate goes up. Blood flow redirects from nonessential areas to critical areas. Our body is prepared for one of two actions: fight or flight.
”Incumbents naturally choose flight. What looks highly attractive to the entrant continues to look relatively unattractive to the incumbent. The asymmetric motivation leads that incumbents naturally flee…”
--Clayton Christensen, “The Innovator’s Business Plan: Identifying the Firm with the Sword and Shield of Asymmetries”
Having arrived- if he does arrive- at the end of the preceding chapter, the hardcore may well exclaim:
”Well, was I wrong to accuse disruption of being an empty word? What a portrait of capitalism! Disruption is represented as a tectonic force, clothed as a weak and buffoonish action, assuming every crummy guise, practiced under any pretext, cheaper and accessible, perverting the enthusiast’s own sacred sense of ‘progress’, flying under the radar due to asymmetries of motivation, exploiting competitor weakness and credulity by asymmetries of skills, and constantly growing by what it feeds on! Could any more revolutionary picture of the future console world be imagined?”
Ahh, but hardcore, the question now is not whether it is revolutionary, but whether the incumbents will fall beneath the disruption avalanche. History says that they will.
Still, it is rather odd that those who denounce blossoming disruption (or casualization as they are pleased to call the phenomenon) for non-consumers who desire video games to perform different jobs, take a far different view, at least of the past and the present. The blogs and forum ramblings of the hardcore boil of such bitterness and hatred toward new gamers that the very word Wii has come to be for them synonymous with de-evolving, retardation, and shovelware. So little confidence do they have in the natural capacity of the market to improve and progress of its own accord that they have even gone so far as to condemn sales, which, as they see it, is every day driving the console world closer to the edge of doom.
Sacred cows line the corridors of the Industry mooing to conventional wisdom. These ‘golden calves’ are composed by the denials of the hardcore (to which most are developers and game journalists). The purpose of the golden moo moos is to make the hardcore feel good, not to be about the truth. One sacred cow, “Casual Boom underway!”, gives a ‘rationale’ to the absurdly high Wii and DS sales. It makes the hardcore feel secure in their future. Other sacred cows include “Nintendo disrupted the market with the Wii controller,” “New Generation just means avoiding red competitive waters,” “Technology and past market performance will tell us the inevitable future,” “The success of DS and Wii caught Nintendo by surprise,” and “the ‘Hardcore’ games will always be around.” Each sacred cow becomes a ‘conventional truth’ and removes any need for investigation. No one questions the golden calves because that would mean to question the future of the hardcore.
But there is one sacred cow, mooing relentlessly, whose milk is slurped up more than any fanboy kool-aid. Can you decipher the moos? Listen. The cow turns to you and says:
Nintendo does not intend to battle Microsoft and Sony.
Really!?
"They will see our results, and they'll see how much of a challenge and dogfight this new era of gaming will be."
-Reggie Fils-Aime. Seattle Times, "Putting Nintendo Back in The Game", 2006
The stages of disruption are…
-First is the ‘aggressive growth’ phase by the disruptor.
-Second is the ‘counterattack’ by the incumbents.
-Third is the fallout from the counterattack. Most of the time, the counterattack is unsuccessful and the incumbents are made *gone*.
Reggie’s quote, asked in the context of ‘CONSOLE WAR’ by the journalist, first says Microsoft and Sony will see Nintendo’s results (their aggressive growth), and then will see how much of a ‘challenge’ and ‘dogfight’ the new market will be.
It should become clear that Nintendo doesn’t intend to battle Sony and Microsoft in the old market but in the new one. While Nintendo, as a company, may not have the resources to battle in the old world, Nintendo has become demi-god-like in the new world where process matters, not resources. In the New World, the strengths of Microsoft and Sony become liabilities while Nintendo’s weaknesses become strengths. Through disruption, Nintendo has re-defined the battlefield.
There Will Be War
”Like the 16-bit War between Sega and Nintendo?” said the reader with hope.
Oh, no. This will be much more intense. When MCI disrupted, it had a period of aggressive growth that AT&T ignored (for MCI was taking non-consumers: the lower rungs of the market AT&T didn’t see worthwhile). Eventually, AT&T HAD to respond and the result was the phone wars of the 1980s.
Western Union called Bell’s ‘telephone’ a ‘toy’; they had no idea their firm, highly praised for its success, was on the brink of destruction. AT&T thought MCI was just nobody until their market began to be swallowed up. The incumbents discounted the belief that these small disruptors would travel upstream. Upmarket is where the greater profit is; disruptors have incentive to move upmarket while incumbents have little incentive to move downmarket giving the probability for victory to the disruptor.
’Compete’ means battling over the same values. ‘Disrupt’ means battling over different values. New Generation and Next Generation are set to collide.
Ever since the NES, there have been ‘console wars’ where the consoles and the software compete using the same values. They try to best one another in graphics, horsepower, macho coolness, and the most hardcore games. They fight one another for exclusives and do everything they can to destroy the other even resorting to breaking the law or throwing the Console War into the United States Senate.
This battle of different values is not, and cannot be, called a ‘console war’ as it will not resemble it in the slightest. Christensen uses the term ‘Asymmetric Battles’, but I prefer the term ‘Revolution’ as that was Wii’s early name and ‘revolution’ resembles the lower masses moving up the tiers to overthrow the hardcore aristocrats.
In such a battle over different values, the new values gain more and more steam while the old values become more and more obsolete until no one notices them anymore. Some might say, “Insanity! Imagine a world where graphics and horsepower are not considerations but forgotten relics? Unseemly! Diabolical!” Visionary. Revolutionary. The change of values is the shift.
Those who adopt the new values, such as the New Market, will see Nintendo’s actions as progressive, as wonderful, and making the best games. They will look at Sony and Microsoft and see their consoles going backward, their games as ‘terrible’, and ‘stupid’.
Those who cling to the old values, such as our hardcore friends, will be completely baffled by Nintendo’s actions. They want to call Nintendo’s actions stupid, as destroying gaming, and hurting the Industry, but they cannot deny the sales numbers. So, they declare they are “confused” by Nintendo. With Sony and Microsoft, they can’t wait to jump up and down all over the next hardcore game.
Already, we are seeing this contextual divide splitting gamers. When Wii Fit was revealed, the national press hailed it as the second coming. Forbes ran the headline: “Can the Wii Save Your Life?” In the Old World, the hardcore thought Wii Fit was garbage, that Nintendo had a horrible press conference, and that Sony and Microsoft were now destined to destroy the stupid ‘casual fad’. This divide will continue to run deeper and deeper. There are now two different gaming worlds, the Old World and the New World, and both think their values are best.
As Nintendo begins to make bridge game after bridge game to fill the gap between the Old World and New World, Microsoft and Sony will have to respond. First, the bridge games will send New Market gamers upstream into higher and higher tiers. Second, the bridge games will send Old Market gamers into the New World by having them convert to the new values (e.g. interface, not graphics, pick-up-and-play, not epic 100 hour marathons). Mario Kart Wii is a good example of this. The wheel helps bring new gamers into the complicated realm that is Mario Kart. But the hardcore, who mocked the wheel, may end up enjoying it to begin to see progress other than what is on the screen.
The response by Microsoft and Sony will end the ‘aggressive growth’ phase and start the ‘counter-attack’ phase. There are three, and only three, responses the incumbents can use.
-(Growth Driven) Co-option of the Disruption
After the disruptor proves the New Market does exist and is viable, incumbents attempt to mimic the disruptor in order to gain access to the New Market. This co-option is a counterattack that will stop the disruptor (for the disruptor loses the new market base to move to upper tiers). Unless the disruptor has no shield (asymmetries of motivation), or if the motivations of the disruptor and incumbent are the same, co-option will successfully prevail. An example of co-option would be incumbent telephone companies responding to wireless technology to sell it to new users. The incumbent missed much of the new growth but is eventually able to tap into the New Market. Since wireless had the same motivation as the incumbents, the disruptors had no shield and were absorbed.
In order to withstand counter attack, sufficient asymmetries of motivation must be developed for the disruptor (what Christensen refers to as the ‘shield’). For example, Microsoft can imitate the Wii with a Wii remote knockoff but the motivation for creating it is very different from Nintendo’s. Microsoft will not have the passion to go after non-users and low demanding consumers in the way Nintendo did. If the reader happens to be a professional analyst and needs translation, this means what matters now is no longer the size of the dog in the fight but the size of the fight in the dog.
-Defensive Co-option of the Disruption
An incumbent performs a defensive co-option when it realizes the disruptor is successfully taking away the old market. As Dell moved upmarket, HP had to respond or else see its entire marketshare be taken away. By emulating Dell in customization on the lower tiers, this stopped Dell at that tier. Dell could no longer advance higher.
Sony intended to disrupt PCs by using the Play Station which caused Microsoft to respond. The entire purpose of the Xbox Franchise is to be a defensive co-option. In this manner, the Xbox Franchise is successful because the Xbox 360 is slowing down the Play Station 3 if not paralyzing it. Sony cannot advance upward anymore.
Wii’s unique elements are poised to alter the upmarket games forever as the new values bubble up from below. Sony and Microsoft see this shockwave flowing up, and what can they do?
A reader says, “The incumbent can simply copy the innovation and stop the disruptor.”
Ahh, but reader, when the incumbent brings the innovation to its market, it never works the way the incumbent plans it.
”Of course, it is worse than this. Not only does an incumbent try to bring the innovation to its existing customers, it typically tries to bring it to its best existing customers. Ironically, these customers value the new attributes of the disruptive innovation the least.”This explains why die-hard Xbox fans are the most vocal against a Microsoft Wii-mote knock-off.
-Clayton Christensen, “Seeing What’s Next”. Page 50
-Ceding the Market
The incumbent is not interested in the New Market and doesn’t care about the tiers the disruptor is taking so the incumbent gives up the market and moves upmarket. Since the incumbent is in the habit of sustaining upgrades, the incumbent will naturally think moving upmarket is the rational choice. The incumbent will think it is ‘moving ahead’ when the disruptor, and the rest of the world, perceives the incumbent to be fleeing.
Should Microsoft and Sony perceive the battle over to participate in the New Market or stop Nintendo moving upmarket, they will gladly cede those markets to Nintendo. Microsoft and Sony can flee upmarket all they want. But eventually, they will run out of higher tiers. Then they either are doomed to a niche or leave the market entirely.
The Asymmetries
”Asymmetries allow disruptive attackers to enter a market, grow without incumbent interference, and mitigate the incumbent's response when it is finally motivated to counterattack. The result of asymmetric battles often is the seemingly sudden end of a great firm. From the incumbent's perspective, every action it takes is rational. But the outcome is devastating.”In “Seeing What’s Next”, Dr. Christensen not only sees the later phase of disruption as asymmetric battles, he even assigns a sword and a shield to the disruptor. The sword is the unique element of the disruptor firm that allows it to pierce the soft, soft underbelly of the incumbent markets. The shield is the unique motivations behind the disruptor’s products which prevents incumbents from successfully counterattacking. For example, the online newspaper is motivated by speed, not fancy writing. The old newspaper is often unable to move to the new world because it keeps its old motivation of fancy writing, not speed. The old values become liabilities in the New Market.
-Clayton Christensen. “The Innovator’s Battle Plan”
Asymmetric Motivation
DEFINITION- Firm does something that another firm does not want to do (provides shield protecting from response)
SIGNALS-
*Size of market relative to firm size
*Target customers
*Business model in market relative to existing business models
Asymmetric Skills
DEFINITION- Firm does something another firm is incapable of doing (provides sword to use during attack)
SIGNALS-
*Mismatch between processes required for success and established processes
-Clayton Christensen, “See What’s Next”, Page 43
This article will focus on finding Nintendo’s shield, its asymmetric motivations that ensure it from counterattack from Microsoft and Sony. Nintendo’s sword, its asymmetric skills, will be discussed in the following article.
The Three Shields of the Revolution
The Revolution has three growth phases which are the ‘shields’ that protect
Nintendo from being counter attacked. Let us explore them, reader.
First Motivation: Change the relationship between the
family and the game machine.
In 1993, a book appeared called “Game Over” written by
David Sheff. The book detailed how Nintendo became a goliath in fascinating
detail to the personalities involved. The cover of the book showed a young
American school boy, face in the television screen, in a dark room, playing
video games with a hypnotic gaze. The book, while extremely entertaining and
informative, was anti-Nintendo and anti-video games. For heaven’s sake, look at
the cover:
This cover is where the seeds of the Wii Revolution began.
Miyamoto took a look at the cover and first realized gaming
had a problem. Gaming could be seen as being unhealthy both physically and
mentally and even damaging to children. The book and its cover apparently stayed
in Miyamoto’s mind:
“Any new media or industry that grows rapidly is going to be criticized. That's just because the older, more established media have been around, and a lot of adults can be very conservative. They may not have an open mind to new things that weren't around when they were growing up, and are replacing the things they grew up with...over the years I've seen this standard image of a child playing a videogame in which the child is alone in a darkened room, with his face very close to the TV, with the light of the TV reflecting off his face, holding the controller, and just staring at the TV. I'd really like to be able to change that image of videogames into something that's a little more positive.”
-Shigeru Miyamoto, Gamesutra.com: "Doing Mushrooms Miyamoto-style"
“Don’t you think you are making a leap?” asks a reader. “We
see what you are doing: trying to bend Miyamoto’s words to support your
ridiculous notion that the seeds of the Revolution began with a book! Come,
come, now! Surely you respect your audience and will stop beating your fantasy
drum.”
How could I make something like this up? Quiet you, and let
the Miyamoto speak. He openly admits “Game Over” was the beginning seed of the
Revolution.
: You've talked about the gamer stereotype — a solitary figure in a dark room with only the reflection of the TV screen illuminating their faces — and your intention for the Wii to change that image. You've been in the gaming industry a long time — when did that stereotype start to concern you?MTV
Miyamoto: I've actually been concerned about that image for a long time because we've been seeing it for a long time. You may recall a book [about Nintendo's history] called "Game Over" that came out many years ago. That may have been when I first started growing concerned about that image because in the beginning there's a photo of a child playing a [game on a] TV in kind of a darkened room. We've been looking at that image since the days of the NES and I think it's important we break out of that image ... I think it's time to break free from that stereotypical definition of what a gamer is, because until we do, we'll never truly be part of the national or worldwide culture.
MTV: What would you like the new image of the gamer to be?
Miyamoto: It would be similar to some of the photos we're showing of people playing the Wii here at the show — which is people of all ages kind of standing up, having a lot of fun and moving around. It's a very active and fun-looking image and that's the type of image I would like to see video gaming viewed as.
-Shigeru Miyamoto, MTV Interview: "Nintendo's Design Guru says Wii can Destroy Gaming Stereotype."
The first motivation of the Revolution is to CHANGE THE IMAGE of gaming. Nintendo spent considerable money in crafting an image of beauty, health, and fun to be associated with gaming.
These
are the new images of gaming. Everything here is combating the image of the
paralyzed gamer on David Sheff’s book, “Game Over”.
When one of our BRILLIANT commentators say,
with a stuffy mouth, “Easing the difficulty of the controls and making many
mini-games is allowing Nintendo to tap casual gamers. This is the cause of the
high sales of Wii,” we can safely say they are missing the big picture. The
entire image of video games, as being a nerd activity for mentally unhealthy
people, is being blasted away. The commercials and image building is similar to
the Atari and NES ads showing gamers having fun with the product rather than
just showing the product itself.
Wii commercials display happy customers instead of the product itself.
This Phase One began well before the Wii
came out. The start probably began with the
introduction of the Wii Remote on TGS
at 2005 and accelerated since
then. Wii Fit is probably the conclusion to this phase as it goes into a low-key
sustained mode.
The Phase One of New Growth was changing
the relationship between the family and gaming. And married men know that
‘family’ really means ‘The Wife’. It was the mother or the wife who was the
biggest block against playing video games.
-Shigeru Miyamoto, Business Week Interview“It was 2003. We got game designers and engineers together to discuss the future of video games. We talked about what specs and features a console should have. But we knew we would get nowhere if we didn't get moms' approval. So we thought about what might convince moms to buy this for their kids. When that happened, we talked about basic concepts and goals, not about the technical specifications of the console. This was the Wii's first major step.
“Our goal was to come up with a machine that moms would want—easy to use, quick to start up, not a huge energy drain, and quiet while it was running. Rather than just picking new technology, we thought seriously about what a game console should be. [CEO Satoru] Iwata wanted a console that would play every Nintendo game ever made. Moms would hate it if they had to have several consoles lying around.”
-Why Sony and Microsoft do not share this motivation.
Sony and Microsoft have little motivation to change the relationship between the
family and the game console. Sony, who was successful with the Play Station 1
and 2, believes the current relationship is still the winning one. Microsoft is
motivated to tie the Xbox more into Microsoft’s software technology. Microsoft
has no interest in designing their Xbox around families.
Now, Microsoft and Sony could adopt this motivation for their next consoles.
However, it will still take second place to their more critical motivations. For
Nintendo, changing the relationship of the console to the family is a priority
to stop ‘gamer drift’, not simply a marketing maneuver.
Second Motivation: Change the relationship between the
TV and the game machine.
Sony’s idea of the relationship of the TV and game machine
is the console becoming a top box, of it being the hub of everything digital
entertainment. Microsoft imitated Sony’s idea.
Since Nintendo did not follow either Sony or Microsoft’s
plans to become an 'all media machine' top box, everyone assumed that Nintendo just wanted to
be a ‘game machine’ and had no ambition. To the contrary, Nintendo’s idea was
far different and more revolutionary than Sony dared to dream. Sony
and Microsoft saw the processors and Blu-Ray/HD-DVD discs as additions to their
sustained strategy to their cinema model. Nintendo abandoned the cinema model
and created a new one.
Television Model Vs. Movie Model
During the discussion of the game console business,
hardware is mistakenly seen as the axis of which the industry business model
revolves around. Make no mistake, the business
model for the console makers revolves around the SOFTWARE not the hardware.
Through the history of the game industry, the software
model has imitated other businesses. Let us review a few:
Arcade Model: The business model for gaming started
out in the Arcades. The reason why Pong is given so much credit is not
because Bushnell was original with making the game (he wasn’t) or that it was
the first game (it isn’t) but because Bushnell used his carnival experience to
fuse the Arcade Model with video games. Suddenly, gaming could generate revenue.
The business model does dictate the form and nature of
the games. The arcade business model insured that games had to be flashy,
very easy to pick up, must have fun immediately, and extremely hard to master
(so the customer would put in additional quarters and eventually lose). Most of
the early arcade games didn’t have an ‘end’. Defender and Pac-Man
would just keep getting faster and faster until the customer lost. The point is
that one can see how the business model, in this case the Arcade model,
created games of a certain vein and style.
Album Model: The first computer games were sold in
the most hilarious ways often resorting to zip-lock bags. A new company arrived
that changed all that: Electronic Arts. Electronic Arts, in their attempt to
highlight the developers, copied the music album model. Games began to be sold
like albums with a beautiful artist rendered box art (which looked nothing like
the game). Some computer games came in literal thin but wide music album
packages where the floppy disc would be like the record. Developers were
displayed like rock bands. Great examples of these types of games would be
Archon and M.U.L.E. The console industry would replicate the album
model with artist made box arts that displayed the game proudly throughout the
8-bit and 16-bit generations.
Mail Model: This is the shareware and freeware
model. It relies on money being mailed back to the company either in donations
or to ‘unlock’ the rest of the game. Scorched Earth, Doom, and
Jill of the Jungle are some of the most recognizable games that used this
model. They allowed newcomer companies like id and Epic into the industry.
Movie Model: These games are developed and
distributed similar to how a movie would be. There are ‘blockbuster’ games that
gobble up millions as well as the B or C type game that is not unlike the B or C
quirky movie in the box office. These games also get price reduced fast in
order to sell more volume. Games such as Metal Gear Solid and Zelda:
Ocarina of Time would be great examples of this model.
Why did gaming change its business models? The answer
mostly concerns the nature of technological competition and the lack of
developer talent. Every business model above appeared as a way to introduce new
eager developers who could not make games in the traditional model at the time.
For example, start-up Electronic Arts could not compete in the arcades where
competition was entrenched and heavy. It relied on the Album Model to go around
in order to display its developer talent (which in 1984, Electronic Arts had
immense talent). As game companies emulated the Album Model, new start ups like
id and Epic could not compete. They took to shareware and freeware to introduce
their talent and to get around the high costs that the Album Model had become.
Even the Movie Model began with a series of eager start-ups looking to break
through. With the rise of the CD, the Movie Model began.
Now, you may ask, “Gee Malstrom, the idea of new business
models to get start-ups in is nice, so why doesn’t it occur more often?” If you
do not recall, in every model, there is a flood of games but most were garbage.
There were many horrible arcade games that are best left forgotten. The garbage
that rode the CD wave was even worse. That feeling of ‘garbage’ coming from the
Wii is exactly its revolution.
Television Model: Nintendo is reinventing the
console business model to be television based. This means that instead of a game
being developed like a movie, with huge budgets and immense playtime, the game
is developed more like a television show with a smaller budget and shorter
playtime. But more than that, the movie model, which Sony and Microsoft are
following, leads to the bigger TV, the home theater set up, and all for greater
immersion. The TV model leads Nintendo to inserting gaming more into the daily
lives of people.
Wii is to the TV as PS3 is to the movie theater. Some might
say, “But movies are more engrossing than a TV show. Therefore, the movie
theater is better.” Not necessarily. Directors are the ones in control in movie
making whereas on television it is the writers. Television is more accessible,
cheaper to make, and easier to enjoy. The Television Model isn’t *better* than
the Movie Model. It is just different and leads to a different path.
Only two real factors place the Television Model as
supreme. First, it is much more profitable. The path the Movie Model is on has
overshot the market. Less and less companies can afford these ‘blockbusters’.
Second, the Television Model has the benefit of surprise (which is critical in
the entertainment business). In entertainment, the market gets tired of the same
thing. Yes, hardcore gamer, people are getting tired of every game trying to be
a movie.
Wii Channels? More like
The Gaming Channels. Will Wii become synonymous with gaming as TV is with its
shows? Nintendo hopes so.
"Originally, the plan was that Wii would be a device that would be placed in the living room, and as such we wanted everyone in the house to be able to use it. And the concept really ties in to Wii Channels: we wanted the Wii to become an additional set of channels for everyone in the family to use, and the only difference is that these channels, which happen to be on your TV, are interactive channels. And as long as those channels are a fun entertainment experience, then everyone in your family can sit down and take advantage of those. So the idea is that the Wii would be a device that you would not necessarily have to sit and play for hours on end, but that you could play for just a little bit of time every day.”
-Shigeru Miyamoto, SOURCE: Kohler Interviews Miyamoto
Nintendo wants to break the barrier between TV and console. After all, the
masses turn on their TVs everyday. It follows they could turn on their consoles
everyday if the console was like the TV.
This is where everyone makes the mistake that Nintendo is pursuing 'casual
gaming'. The problem with most 'long form' type of games is that once you are
done with it, you place the game on the shelf and do not turn on the console
anymore.
"Moving on to Wii development in general, Miyamoto revealed that the development theme for the system was "Hardware that you'll want to turn on every day." "This isn't a simple thing," he said. "The DS is a portable machine, so it ends up being turned on casually while walking around. In the case of a console, this can't be done. We wanted to make something that could be used every day like a television."When Miyamoto refers to the DS, he is referring to the portable nature of the machine demands games that can be turned on while walking around. However, with the Wii, Miyamoto wanted games to be fashioned more like television shows (as opposed to movies).
-Shigeru Miyamoto, IGN Interviews Miyamoto Post E3 2006
In order to help speed this process, Nintendo has made TV channels on the Wii to help with TV viewing.
This is the TV Channel in Japan.
Just recently, the BBC iPlayer was announced for the Wii. But the following quote suggests a focus to tie the Wii to the television:
"BBC iPlayer on Wii will offer Wii owners another reason to turn their console on everyday and adds to the already established non gaming content on Wii that includes news and weather channels and an internet browser."
-David Yarnton, general manager of Nintendo UK. SOURCE.
Wii obtaining the iPlayer is a major scoop. *Smooch*
-Why Sony and Microsoft lack the motivation of turning consoles to become
television centric as opposed to movie centric.
One word: Blu-Ray. We all know Sony’s motivation with the PS3 was to establish
Blu-Ray and fortify its profits on the ‘high-definition’ trend. Unfortunately
for analysts who said PS3 would ‘win’ solely due to Blu-Ray,
this is permanently tying the PS3 to the movie business model. Today, people
complain their PS3 is just a Blu-Ray player to play movies but that translates
to its games as well. The most anticipated games on the PS3 are cinema style
games (Metal Gear Solid 4, Final Fantasy XIII, etc.). Sony is so
intertwined with the movie model for gaming that there is no way they can
squeeze their way out.
Microsoft has followed Sony’s direction this generation and follows a ‘movie
model’ for its gaming. However, Microsoft is not as intertwined with it as Sony
leaving Microsoft as the likely one to counterattack in some fashion.
Microsoft has put out many products that attempt to be a computer connected to a
TV… and all have crashed and burned. Out of all the ‘shields’, this is
Nintendo’s weakest one against Microsoft. With the PCs fully embracing a more TV
model for gaming (as opposed to movie model), Microsoft will have little reason
not to see the light.
But when one examines Microsoft’s past products that connected to the TV and why
they failed, the answer is that consumers do not like Microsoft’s type of
control over their content. This became an issue for iPlayer and why they turned
down Microsoft and went to Nintendo:
Sony has a web browser on their console as well so it seems reasonable to conclude iPlayer will eventually come to the Play Station 3. Microsoft does not, and it appears the desire of Microsoft to control the content was a major reason why they missed out on the iPlayer deal."If you want to get [iplayer] on the PlayStation or Xbox, they want control of the look, the feel and the experience; they want it done within their shop, and their shop only."
-Erik Huggers, from BBC Column by Darren Waters.
The bigger picture here is how asymmetries of the firms themselves are shaping the landscape. Does Sony want to sell television and movie content? Of course. But it wants to sell their television and movie content. Since Nintendo does not create television and movie content, it has no conflict of interest within the company for adopting the iPlayer.
Microsoft, also, does not produce television and movie content. But Microsoft's goal, for every product, is to turn it into a platform and then charge confiscatory rates on the content. This is easily illustrated with Xbox Live Arcade where Microsoft began absorbing 70% royalty rate. Microsoft cannot gain any royalties from iPlayer and could possibly interfere with their plans of selling movies and television.
"We feel that this kind of menu and channels framework offers many opportunities for people who don't play games," he said -- a machine that is more of a "companion to the television."This is, perhaps, the third and final tier of growth to the Blue Ocean Strategy is for Nintendo to completely eliminate the barrier between TV and game console. This would obtain the 'distant users' which the Wii cannot currently obtain. Gaming would then be seen more as 'interactive channels' that are intermeshed with the TV lounging experience.
"We never thought of the Wii as fighting with television... we thought that Wii could make watching television even more enjoyable."
-Takashi Aoyama, Team Leader on Building the Wii Menu, GDC 2007 Speech
"Certainly. I think the convenience that stems from being able to use the internet while watching TV is something which depends on the environment of the user. For example, for someone living alone, they might very well say that they're already doing this, since it's quite common for their TVs and computers to be located close to each other. Even someone living with their family can use the internet while watching TV if they have a laptop connected to a wireless network in their living room. Bearing all this in mind, the potential I see in the Internet Channel lies in the fact that the internet, which has until now been viewed alone, can now be viewed by everyone. With a computer, even if you have people peering over your shoulder to see the screen, the limit is pretty much two, with four or more people looking at the same screen being totally out of the question. With the Wii, which is connected to the living room TV, families will be able to enjoy the internet together. I don't know what lies ahead, but I think this has the potential to change the way we live."
-Satoru Iwata, Iwata Asks "What is Wii?"
Console design has always been from the orientation of the console itself
where its additional features are 'extensions' of the system. The Wii is
literally turned inside out where the console is designed to be an extension of
the consumer's lifestyle.
In the end, all of the proposals we made for Wii were related to lifestyle choices, redefining the relationship between people and their consoles. I believe that all the thought and effort we've put into developing the system functions is ultimately related to this.
-Kuroume, Iwata Asks "What is Wii?"
Is Iwata really that ambitious? Could Yamauchi's dream of the family computer
taking over the living room be nearer to reality than we thought?
-From Iwata's Ask "What is Wii?"
Iwata:
Summing up my feelings, I would say that in all honesty I did not expect to see the hopes that I had for Wii in the beginning so fully realized in the finished product. While developing Wii, I felt that if the ideas I had could be made reality, then this could really change the relationship between people and games. I felt that this would add a new dimension to families' everyday experience of using the internet and playing games. I thought it might change people's lifestyles, as families gather around the TV to enjoy a new type of entertainment. Now I can hardly wait to see how people respond to the console. I don't mean whether they like it or not; I mean it in the sense of wondering what uses people are going to find for Wii. I think we've really come up with something pretty special.
Tamaki:
Can I just add something?
Iwata:
Be my guest! (laughs)
Tamaki:
I want to see families fighting over the Channels!
All:
(laughter)
Malstrom:
(laughs)
Sony and Microsoft:
(doesn't laugh)
Third Motivation: Change the relationship between the Internet and Console.
Malstrom walks onto the balcony where crowds await
below.
Since the inexorable necessities of game expansion request a movement into
Internet gaming, it follows that Nintendo will out-maneuver Sony and Microsoft
to create a superior and more solid Internet Gaming Model.
The hardcore gamers foam at the mouth in shock and
scream like banshees to hurl verbal tomatoes at Malstrom.
Good Heavens! What have I said, and what uproar assails my
ears! Today there is a veritable mania for attributing the Xbox Franchise with
the crown of Internet Gaming conveniently using piece of one part of the
spectrum (always the hardcore players’ experience) rather than the entire
spectrum (the business model). Why even the Play Station 3 is heralded as a fine
Internet gaming platform while Nintendo commonly has hardcore gamers’ fingers
wag with a contemptuous air, “It is time for you to get with the program,
Nintendo!”
A person from the crowd speaks. Let us listen:
”Online gaming is definitely one of the new frontiers for gaming, and while Nintendo is finding a route into the Blue Ocean, they should definitely keep an eye on how other aspects of gaming are evolving. To focus too much on their fantastic innovation is to lose sight of the whole picture of gaming as it exists today and what it will be in the future.”
-Michael Kelley, Kombo.com: “Not Just Lag, How Nintendo Fumbled Online Play”
Did it ever occur to this person that Blue Ocean (and especially Disruption) applies to online play just as well as offline play?
”But Malstrom!” a reader says, “Hardcore defines the standard of online gaming.”
Everyone agrees that Wii is not focusing for the ‘upmarket’ hardcore and yet, bizarrely, they demand its online apply to hardcore ‘upmarket’ standards. Sounds like a lack of consistency of thought, does it not reader?
”You will defend anything Nintendo does! Shill! Viral Marketer!”
Saying Wii is aiming at the lower end market is not a ‘defense’ against unhappy upmarket (hardcore) consumers. It is simply saying what Wii is doing. Why is that so different from online?
*silence*
Huh? Have you no answer? Anyway, let us hear another.
”When Microsoft started online multiplayer there were only a few million. They ironed out the kinks and bumps until they got it right. Though there are issues from time to time, it really is an awesome service. It’s well worth $50 a year. In this gaming generation online game play is a must and it is the future. Nintendo should charge a flat annual fee to play online. Sure it’ll be painful at first but the outcome will be playing a contemporary console; instead of an antiquated dinosaur. Change is good.”
-Roger Thorpe, ”Wii Pay Play or Nothing At All"
Yes! Nintendo should emulate Xbox Live because it has spurred unlimited growth to Xbox’s market share, made the Xbox 360 more accessible to new markets, and shot up Xbox 360 sales through the roof!
”But Malstrom, Xbox 360 sales are stagnant if not slowing and will likely end up a distant third this generation.”
What! That cannot be, reader, for every sublime commentator has said Nintendo should emulate Microsoft’s online service. Obviously, one imitates a succeeding strategy. No commentator would suggest Nintendo to follow a failing strategy.
”There is no failing strategy so long as it satisfies the hardcore.”
So, you are telling me that a company could lose billions of dollars would be declared a success if the hardcore were satisfied with the playing experience?
”Yes.”
And that if the online strategy, instead of growing the console’s market, decreased it, it would be hailed as the finest success by the hardcore so long as it catered to hardcore interests?
”How can an online strategy hurt a console?”
Well, I don’t know. Anyone in the audience wish to answer?
And an answer came…
”It’s hardly an industry secret that Nintendo is the most reluctant console manufacturer of “the big three” when it comes to pushing online play on its latest home console. Xbox Live has really set the benchmark when it comes to providing what players now readily expect from a gaming experience that takes them into the wider virtual world outside of their own machine, Sony also seems to want to reach that same wavelength, but Nintendo still appears somewhat cautious about the whole idea - a decision that could potentially harm the chances of the Nintendo Wii in the years to come.”
-Andrew Macarthy, Nintendic. “Why Nintendo’s Online Gaming Paranoia Could Harm the Wii”
I am confused, reader. Can you please provide assistance?
”I will do what I can. What is the issue?”
The quote above says that Nintendo’s online strategy could probably hurt the Wii while Xbox Live has the benchmark, and Sony is reaching that same wavelength. Then why is the Wii selling like crazy while Xbox 360 and PS3 fight one another for best minority console status?
”Gimmicks and fads, Malstrom. Gimmicks and fads.”
My question is why would Nintendo want to emulate features of FAILING consoles?
”To be fair, the sublime commentators also say Nintendo needs to emulate its competitors and get a HD version of Wii out right away.”
True, they do. Based on this pattern, I suppose Nintendo needs to abandon the Wii-mote and replace it with a new version of the classic controller.
”And raise the price.”
And throw out all the low end software and just focus on making blockbusters and cinema experiences.
”The hardcore would love it.”
Such an invention would be a negative console where it shows that what hardcore defines as ‘progress’ is, like a giant enemy crab, to actually go backwards.
”Look!” said the reader. “A contrarian voice arises:”
Penny Arcade’s representation of online gaming dorks is right on.
”Even more gamers go online a few times and then never play again. This isn't just my personal speculation; I have seen convincing data from two different sources that the biggest problem with online gaming is the behavior of others. The biggest problem isn't the cost; it isn't connectivity issues, or even the quality of the games -- it is how people are fuckwads online.The temper tantrum the hardcore have about Wii’s online is remarkably similar to the crying fests when Wii Sports and other ‘casual’ games became the focus of Wii. Why did hardcore scream over high sales of the so-called ‘casual’ games? It is because they viewed gaming as an evolutionary straight line toward better immersion and complexity and casual games, to their view, appeared going ‘backwards’. In the same way, the hardcore view online gaming as an evolutionary straight line and see Nintendo’s online as going ‘backwards’.
“To make this concrete, here's a thought experiment for you: imagine you go to a new restaurant, and decide to try the meatloaf. A big guy at the next table overhears you, looks at you, and yells: ‘Meatloaf? What kinda newb are you? Hey everybody, this r-tard just ordered the meatloaf!
”’God, I'm glad you're not at my table.’ Laughter breaks out at the tables around you, as they crane their heads to look at the newb. The restaurant staff is nowhere to be found, and you're not entirely certain they'd do anything anyway -- you can tell this is normal behavior at this place. How good or cheap would the food have to be to get you to go back there? Who would you bring there? The vast majority of the world population wouldn't go back there, and would warn everyone they knew to avoid it.
“So again, why do I care? Because the online behavior of our customers is dramatically reducing our sales, and continues to stunt the growth of our industry. Non-gamers simply don’t love games enough to put up with the crap they get online. The reason they would consider playing online is to have fun with other people -- and right now, playing games online with strangers rarely delivers that for anyone outside the hardcore demographic.”
Bill Fulton, Gamesultra. “Fixing Online Gaming Idiocy: An Online Approach” [Emphasis is Fulton’s.] (Fulton led the Microsoft Game Studios User-research Program from 1997 to 2004)
Listen to the anger:
”Nintendo has stated that it has a three-part goal for online gaming: ’[M]ake it free, make it easy, make it safe.’ There's no doubt the company deserves high marks for the first two. Its desire to keep players safe, though, is ridiculous overkill. In trying to keep kids from talking with unsavory characters, Nintendo removes any trace of human contact. The Wii's With Anyone mode is designed to be so anonymous that if one player's Internet connection fails, the computer will take over and none of the other players will notice. Brawl's official Web site cheerfully describes this as a special feature. If the goal is to play against an army of automatons, why bother having an online mode at all?
”Nintendo's overpolicing even extends to protecting players' self-esteem. In an online interview, Nintendo President Satoru Iwata explained that the Wii's online service doesn't have a leader board because he didn't want less-skilled players to feel bad: ‘Those in the top five might feel pretty good about themselves, but what happens if you're number 15,398 in the rankings?’ My guess: You'd try to move up to 15,397, and you certainly wouldn't unplug your Wii and run away crying.”
-Jack Patrick Rogers, Slate. “Super Smash Bros. Brawl: a great game- and another fiasco for the Nintendo Wii’s pitiful online gaming service”
Sorry, Mr. Rogers, but it is not the ‘less-skilled players’ that unplug their
Wii and run away crying. It is the hardcore when they realize, yet again, that
the world does not revolve around them. Words, words, and words are inflicted on
the Internet by all these hardcore crying about Nintendo’s online.
Perhaps it is time we listen to Bill Fulton some more:
”If we want multiplayer gaming to grow, we have to start designing the social environment(s) to appeal to people other than the trash-talking, hardcore gamer.For the sublime commentators that, like a factory’s mass production, keep rolling off editorial after editorial of how ‘awful’ Nintendo’s online is, I have some words for you.
”Gaming is finally starting to broaden -- The Sims, WoW, the Wii, Harmonix, casual games, and more are introducing gaming to new kinds of people. But how many of those newbie gamers will be mocked instead of welcomed to their first multiplayer game? In your multiplayer game? Without careful social design, the answer is "almost all of them".
-Bill Fulton, Gamesultra. “Fixing Online Gaming Idiocy: An Online Approach” (Fulton led the Microsoft Game Studios User-research Program from 1997 to 2004)
Remember the lashing and wagging of tongues you did on Nintendo during the Gamecube years and how it came back to bite you? While Nintendo released NES classics on GBA, you did not see Nintendo was testing the market demand for a Virtual Console full of retro classics. When you slapped Nintendo for creating Bongos, you did not stop to think that Nintendo was beginning the experimentation that would lead to the Wii-Remote. While the Industry and conventional thinking was completely wrong about Nintendo which led to the “surprise” hits of the DS and Wii, what is the probability that conventional thinking and Industry hive-mind still gets Nintendo wrong? Quite high.
The Revolution has three motivations which Nintendo has
focused as ‘phases’. The first two, changing the relationship between the
console and the family and television is already underway. Nintendo has only
begun its third phase of Internet Gaming.
Nintendo’s Online Strategy
If you want to know the future of the Wii, you need only
study the NES. What was old is new all over again. Nintendo’s approach to online
has always been practical (i.e. profitable, useful). Any mind numb idiot can
dump the PC online game model onto a console. Nintendo was experimenting with
online as far back as the Famicom. Even Sega experimented with online back then.
While it is easy to say “Nintendo has missed the boat on online gaming,” it is
more accurate to say, “Nintendo skipped the boat on PC online gaming to build
its own boat of console online gaming.” Why did Nintendo skip the PC
online gaming boat? It is because it would not grow the market. If it did, Xbox
360 should be the top console everywhere.
As is my habit, I do not listen to developers, to
journalists, or even gamers. I bend my ear toward the investors. What are they
saying? Quiet reader, let us listen.
“So what is the real next billion-dollar opportunity? I say it's the Internet."
[MMORPGs] “…incredibly, there's some traction in that marketplace, but the reality is these are really hardcore gamers who really own their worlds and any newbie that shows up gets killed in 15 seconds. So this has been kind of a bad experience for the general gaming public and the Internet is really not where it should be."
“The Internet is amazing today because of where it's going, not where it's been."
“Nobody to this day has leveraged the power of the Net in the context of making the next great video game platform.”
"I contest that the movie model is the absolute worst model you can design your next-generation business on. Television's a very different model."
"From the point of view of venture-capital investors, we believe the right way to think about things is in terms of TV, not movies.”
"Content really does matter and we have not found a group of developers to date that has said, 'I will start by making the very best Internet-based experience and build this new brand that is much more like a channel.'"
"We basically believe the current video game business is sick. We're definitively saying that we don't think we're in the next transition cycle; we actually are in a much more fundamental shift. What we're saying is there's a different way of thinking about games that shifts the logic of the game from the device to the network, and it includes all the devices… The process we're talking about still has some significant issues in terms of deployment, but from the point of view of venture-capital investors where we have our eye on the future, we believe that the right way to think about things is to start thinking in terms of television: episodes, large audiences, those audiences interacting with each other, and really looking for innovative and different ways of generating revenue."
"It fundamentally revolves around new gameplay. Without new gameplay, shinier and shinier graphics will reduce and evaporate larger and larger amounts of shareholder value."
These quotes came from
the Second Annual Game Investors by
speakers Stewart Alsop and Gilman Louie. The date of the quotes was June
2006 before the Wii Channels were revealed. Ironically, the investors thought
Sony would be the one to go this path, but Nintendo got there first.
Nintendo is the First Mover this Generation
“How can the last released console be the First Mover?”
Simple. First Mover status applies not in the first console
released but in the first to abandon sustaining strategies. Xbox 360 and the
Play Station 3 rely on sustaining strategies. This explains why the first year
of both consoles was so abysmal. During the month of December 2005, even the
Gamecube was outselling the Xbox 360.
Nintendo got to the disruptive strategies first. It got to
the new image of gaming before Sony and Microsoft even knew there was something
wrong with the old image. Even now, Nintendo’s Television Model is dismissed
while Sony and Microsoft still consider the Movie Model to eventually ‘win’. The
third phase, of Internet Gaming, has not yet even been considered by the game
journalists, hardcore gamers, analysts, or Sony and Microsoft.
Nintendo Rejects the PC Model
Sony and Microsoft mimic the online for the PC. The
tendency for Microsoft and Sony to imitate PCs in everything, from hardware, to
software, to features, brought about this memorable exchange:
[“Was Mario Galaxy inspired from Ratchet and Clank’s spherical worlds?”]
"It's not an idea we got from anywhere else," adds Miyamoto, before adding: "I'm sorry but I have to admit that I've never seen the game in question. Is it a PC game?"
-Shigeru Miyamoto, Interview with Computer and Video Games Magazine
What is progress to consoles? The answer is growth
meaning more sales. Whatever grows the market is good. This is not the
philosophy of just the Wii, it is the ideology of the NES and the mentality of
the Atari 2600.
Most hardcore gamers and sublime commentators are so
confused that they consider console progress to mean more PC functions. Sony’s
“innovations” turned their console more and more into a PC which infuriated
Microsoft to bring them into the console business. Kutaragi knew what he was
doing from day one.
"No, it [Play Station] is for computing-but I wanted to change the concept of computers. The name of our company is Sony Computer Entertainment; I wanted to merge computer technology and entertainment. It may be regarded as game applications for the time being, but I wanted to realize the day when ‘computer entertainment’ would mean all such entertainment applications, including games.
"Though sold as a game console, what will in fact enter the home is a Cell-based computer."
"It is Microsoft. And I will kill them."
- Ken Kutaragi talking about the Play Station 3 and the last quote is from 1994 when asked who he thought the biggest competition would be for his upcoming Play Station game console.
Miyamoto calls out the trend as well. Notice that the idea to ‘expand gaming’ by Sony (and likewise Microsoft) was to get non-gamers to buy the console for some other function. The idea was to make the console a ‘big tent’ by putting in PC like features to entice non-gamers such as DVD drives, Blu-Ray drives, movie and music functions, Linux, and so on. Nintendo’s idea is to actually create more gamers. How ironic that non-gamers are said to be the reason for high sales of Wii and DS while they are actually more of the reason for the sales of PSP and PS3. If the Play Station 3 becomes the best selling console, it will be because people are buying it for Blu-Ray and not to play games.
“As we see the other consoles get more and more PC like in their nature, it's only natural to try and use more PC-like functions in terms of downloads and things like that. You know, Nintendo really focuses on entertainment and we've really created the Wii to be this entertainment device that couples with your television set that anyone in the household can find entertainment value in. So in that sense we're not focusing so much on extemporaneous functionality so much as what kind of core entertainment value we can include in the hardware that everyone in the household will be able to enjoy.”
-Shigeru Miyamoto, Interview with Joystiq/Engadget
If one can only see online in the PC context, then one will
never understand Nintendo’s online strategy. In fact, those who see gaming only
in the PC context are also those who cannot grasp why the Wii is still sold out.
It should be noted that some of the biggest gamers on the
Wii are PC gaming fans. Why? Because they know there is a difference between PCs
and consoles. They, like the old school gaming fans, hate the idea of consoles
being PC-like. How often do you hear a PC gamer say that FPS with a dual stick
is a joke or the absurdity to pay for online connection when one gets it free on
the PC?
No, the ones who are completely lost are the console gamers
who see no difference between console gaming and PC gaming. When gaming goes a
different path than the PC, they call it ‘backwards’ but most notably they call
it non-gaming. When a console goes a different path than PC, they call it
a non-console. So it follows with Nintendo doing online different than
the PC model, they will soon be calling it non-online.
N’gai Croal didn’t respond too well when he was told
WiiWare would not be having demos. Like many others, he confuses PC gaming
staples for console gaming standards. Listen to how Nintendo responded:
“As it relates to ‘Try before you buy,’ I do know that is something that is a staple towards the PC download space . For us, you know, really our intention is not to compare to what other people are doing, it's really what Nintendo is trying to create and what Nintendo feels is a good experience for the consumer.”
-Tom Prata, Nintendo of America director of project development. Newsweek
If you want to make a successful console experience, you
must reject PC gaming staples. After all, Nintendo has no intention of competing
with PCs unlike Sony and even Microsoft (who is using their Xbox as a defensive
move against Sony).
Nintendo is Going a Different Direction Than PSN and Xbox Live
The stagnant and slow sales of Xbox 360 and Play Station 3 should point out that
their online models are not focused on growing the market. The steps Nintendo is
doing, while frustrating for the seasoned gamer, are designed in such a way not
to antagonize the audience and to help sell their consoles.
So what in the world is Microsoft and Sony trying to do with online since it
isn’t growing their market?
"It has almost gotten to the point where retail games are like movies...a blockbuster comes out and everybody wants to have it for the first few months, and then it is forgotten about, literally,"Sony and Microsoft are well aware their business models are in trouble. The losses both took to put out their consoles placed their game division financial houses on fire. How are they going to put it out? How are they going to stop this ever surging and rising cost?
-John Hight: Gamepro, “The Retail is Dead”
”Even as the videogame industry’s sales have eclipsed -movie box office take in the US, the industry remains hostage to Hollywood’s blockbuster mentality: big budgets, bigger production teams, sweeping prerendered cinematics, slavish photorealism. But, as with Hollywood, the game business is not booming. Total US sales – which include console and handheld titles, hardware, and accessories – have flattened since 2002, and -major gamemakers, like Electronic Arts and Atari, are posting big losses.”This quote paints a dire picture. But what is to be done?
-Kushner, David. 2006, Wired, “The Infinite Arcade”
“We have to change the business model. We have to find a new way to reach the consumer.”Third parties even say that they had to consolidate because of the skyrocketing cost of packaged games.
-Phil Harrison, August 2006, then president of worldwide studios at Sony Computer Entertainment, Wired: “The Infinite Arcade”
"Don't blame consolidation. Blame Sony and Microsoft for jumping the budgets up to $30 million for a console game. That's not consolidation's fault.” [It’s that high price of entry that will cause many of the industry’s real innovators to completely avoid working on the major consoles in the packaged goods business.]Sony and Microsoft’s answer to their financial fire is digital distribution.
“At this point, the console game business and PC boxed game business is closed unless you want to dance with the devil,”
- Mitch Lasky, former VP of EA Mobile and current general partner at VC firm Benchmark Capital. Source
The breakdown of the $60 gaming cost.
For a $60 game, (turning the percentages into dollars)
Retail Markup = $12
+
Manufacturing Costs = $3
+
Distributor = $1
Digital distribution, alone, could shave $16 off the $60 games to a more reasonable $44. Consider that the console licensing fee is around $7 out of that $60 and you find that the retail mark-up is more painful than licensing. If Sony and Microsoft could remove that, they would be able to get their price costs under control.
However, this means removing the retail element from the business model (which has always been used since the first game consoles).
“Years from now, the concept of driving to the store to buy a plastic disc with data on it and driving back and popping it in the drive will be ridiculous. We’ll tell our grandchildren we did that, and they’ll laugh at us.”Peter Moore may very well be right. However, online distribution will become the norm when the consumers say so, not when Microsoft and Sony say so. Consumers are interested in online distribution to make their lives easier (such as not having to store physical discs, have all software available at a moment’s notice, etc). Sony and Microsoft’s interest is purely financial.
-Peter Moore August 2006, Wired, “The Infinite Arcade”
“I’d be amazed if the Play Station 4 has a physical disc drive,””That doesn’t speak well for the future of Blu-Ray,” says a reader. (And the amazing thing is Phil Harrison said this before the PS3 launched.)
-Phil Harrison, 2006, Wired, “The Infinite Arcade”
The major mistake Sony is making with it is pitting online distribution against retail. The worse thing is that the online store is cheaper which undercuts the riskier and more expensive retail model (i.e. online doesn’t have inventories that MUST be sold, retail does). Sony’s business decisions, blasting it back to the Atari Age, are amusing, but where is Nintendo on all this?
In 2006, everyone assumed all three console manufacturers would pursue online distribution to curb costs. However, Nintendo is veering off in another direction.
”However, I don't think that packaged, retail games will be replaced by downloads over the next three- to five-year cycle. Packaged games have a number of advantages, from the guarantee of a certain amount of sales volume to the firmly established buying habits and infrastructure that I think should be preserved in the future.”Iwata does say that packaged goods are not the complete solution anymore. Yet, he goes on to say:
-Iwata, Gamespot, “QA with Nintendo’s President Feb 5, 2008”
"I hope that WiiWare can act as a platform for that kind of an experience, but there are always people who suspect that WiiWare is all about cutting out the distributors. [Chuckles] I try to explain that that's really not the case every opportunity I get.”
-Iwata, Gamespot, “QA with Nintendo’s President Feb 5, 2008”
Aoyama echoes Iwata in that unlike Microsoft and Sony, Nintendo does not intend to remove retail from their business model
"Why are we introducing WiiWare now? Are we shifting away from traditional retail sales? Rest assured that is not tIt is clear that Nintendo’s online strategy will go a very different direction than Sony and Microsoft’s.he case."
-Takashi Aoyama, Team Leader for making the Wii Menu, GDC 2008
Nintendo’s Online is Focused on Growth, Profit, and New Experiences
”I've been involved in looking at online gaming for a while now. We are responsible to the shareholders in the company so everything we do has to make sense financially. Until recently we have felt that we couldn't make money out of online gaming. It has been very difficult for online games to become an authentic business in this industry.”The reason for the delay of Nintendo doing online gaming is because Nintendo demanded it to be profitable, grow the market, and provide new experiences. This is not easy. Making money online is never easy or as simple as many say.
-Shigeru Miyamoto, Interview with Greg Howsen
"Customers do not want online games. At the moment, most customers do not wish to pay the extra money for connection to the Internet, and for some customers, connection procedures to the Internet are still not easy.
"During the year-end shopping season last year [2003], none of the online games succeeded. All the games that sold well were off-line games.
"Online technology has its own interesting features, so I don’t rule out the possibility of making use of it for games," he also said that the industry would soon come around to his point of view. "Game companies now find it difficult to make online game businesses successful, and their enthusiasm for them is cooling.”
-Satoru Iwata as described from Gamespot
Even back in 2003, Iwata is rejecting the ‘herd movement’ of just slapping online into games and is thinking about it more seriously. Fast forward over four years later:
"This is the first device [the DS] that is portable and wireless and anybody can use. And with so many devices out there, it would be wasteful to not turn it into a tool,"
-Satoru Iwata as quoted in MCV
Practical is the key word. Such new DS capabilities, even
non-gaming ones, could easily end up selling more systems (despite DS breaking
sales records) and maybe even generating new revenue themselves. Nintendo views
online as a means to grow the market, not to tailor online to hardcore
interests. This view was also adopted with the controller and the marketing of
the Wii. Yet, when online discussion breaks out, the hardcore believes the world
still revolves around them.
One mystifying thing about online gaming is that, on PCs, it began mimicking
network code over the Internet (as anyone who used Kali would remember). Even
then, gamers would lug their computers to one location for “Network Gaming”. For
PC gaming, this made sense as multiple people could not easily surround one
computer. There was always just one mouse and one keyboard. The ‘voice chat’ and
even ‘cameras’ are little more than poor simulations of the same-room networking
experience.
Online gaming really began when it started doing gameplay that network games
could not do. MMO games could never be duplicated in a home as thousands of
people could not fit in a single space. The future of online gaming will be
explored in areas not yet defined by network multiplayer.
I’m convinced Microsoft and Sony are not pursuing online gaming outside of the
PC context (even Home and Achievements can be found, of some form,
on the PC). Nintendo will most likely explore various alternatives to the basic
context. An example would be WiiConnect24 features combined within games.
Much of this ‘phase’ is yet to come but is Nintendo’s next priority for pursuing
‘growth’.
“Wii Connect24 will not necessarily allow for the downloading of massive content, but rather using that functionality allowing for packets of data to be traded back and forth between different players, and having that give birth to different styles of gameplay.”
-Shigeru Miyamoto, Interview with Joystiq/Engadget
Third parties such as Majesco confirm this is Nintendo’s online philosophy:
Multiplayer: Is there any element to this that you can point to as only being possible on the Wii, something that took advantage of the Wii’s unique online set-up?But most importantly, Nintendo’s approach to online is for it to be one of the arms on the spinning disruption storm, not the entire storm itself.
Ray: With Nintendo it’s all about enhancing gameplay, especially in a way that broadens the audience for these games. Online capabilities may be showing up on the Wii later than on the Xbox, but I think that what you see show up on the Wii will be much more community-based and with a much broader appeal than the traditional 18-35 year old male demographic that we see with Xbox multiplayer games.
Multiplayer: Are there any misconceptions about the Wii’s online set-up that, because of this experience, you’d like to clear up?
Ray: Absolutely! Contrary to popular belief the Wii is a very connected device and Nintendo enthusiastically supports publishers adding wide-area multiplayer and community features into their games.
-Kevin Ray, Majesco’s Chief Technology Officer, Interview with MTV
“The profitable part of the online business is very likely several years away. Entering the business because it's the hot topic of the day doesn't make a profitable business nor satisfied customers, ... That's why it will be a part of Nintendo's strategy, not the mainstay, as other companies are attempting to do. There still are too many barriers for any company to greatly depend on it.”
-Satoru Iwata, Source
The Slow Evolution of Wii Online
When the Wii launched, outside the Mii Plaza and message
board, only one online function was available: Wii Shop. Some people astutely
commented that “Nintendo’s priority is on the online that will make them money!”
And why shouldn’t it be? Also, the first Virtual Console games did not include
the blockbusters but the most primitive games on the system. Why start with the
primitive games first? “To make more money, Malstrom.” Correct! Show me the
money, indeed.
Slowly, the other channels came online such as the Weather
and News Channels. These ‘free’ channels are very cheaply made (but with nice
presentation). Their purpose was to increase the value of the product, and it
has done so as many newcomers think something like the Weather Channel is
‘useful and cool’.
Wii games with online began with Pokemon Coliseum
and Super Mario Strikers: Charged. The online keeps getting more
developed, deeper. It shows that in the near future, the online features will be
getting more extensive. In disruption terms, this is called starting
downmarket and moving upstream.
Many hardcore gamers are impatient.
“Where is the voice chat, Nintendo!?” they snivel and whine. “Why the friend
codes!?” they stomp their feet and cry.
The answer is twofold. First, these are upmarket elements
that don’t fit the disruption master-plan just yet. Second, these things have
not been configured to grow the market, give the console additional value, or
gain profit to developers. What? You have demands you would like to present, Mr.
Hardcore Gamer?
“Yes, Malstrom, hear my demands!” as he beats his chest
like Donkey Kong. “Why are there friend codes!?”
Why, to protect the DS and Wii value. If online ceases to
be seen as safe and secure, it will not grow the market, but it will diminish
the value of the console itself.
"Why have I run out of Wii disk space? Curses to thee, Nintendo! You put out a
system that has no space for me to buy your games!"
It shows that the movement of consoles using the Internet is moving faster than
what Nintendo and the industry predicted. When the Wii was released, the
provided space was quite adequate for NES, SNES, and a few N64 games. WiiWare
was not much of a thought then and multiple non-gaming channels have increased
on the Wii. Listen to the investors quoted earlier who spoke of the coming
Internet wave for gaming for a 'billion dollar opportunity' (and they said it
two years ago). Things are changing so fast, simply putting out a 'storage
drive' or allowing programs to be accessed from SD cards might be only a
temporary solution at best. Microsoft and Sony also scrambled to put out
more space on their systems.
Most likely, something will be done. More than anything, Nintendo wants people
to keep buying online products. It will be Nintendo's greed, not hardcore
demands, that will spur a solution.
“Where is the voice chat!? If they add that, the games will
sell like hotcakes. I swear!”
It didn’t help Metroid Prime Hunters, did it? Voice chat is
not a magical feature like a moonbeam from the heavens that suddenly brings
sales and great gaming experiences. Often, voice chat is abused and harms the
gaming experience. This is why it is not there. And when voice chat makes its
appearance on the Wii, it will only be in a select few games Nintendo (or a
third party) judges to gain value from it.
“When Nintendo puts in these features, you will do an
about-face and claim how wonderful they are while you currently trash them
today.”
You need to remember to take off your hardcore hat when examining the market.
These online features, that many hardcore declare are of 'paramount' importance,
have shown zero market impact in the marketplace and suggests even
negative impact. Nintendo is only putting these features
in when they bring in the money, increase the value of the system, and sell more
Wii systems. It is that
simple.
Imagine how stupid it would be for someone to say, “Why is the Wii not able to
display high definition? Stupid Nintendo! Behind the times as usual.” As
everyone accepts now, Nintendo neglected high definition not because it couldn’t
do it but because of other business reasons most people wouldn’t immediately get
(such as development costs).
The same people who refused to acknowledge the downsides of high definition
gaming did not acknowledge HD gaming has high development costs with the small
HD TV installed base (or they did but said it was “Nintendo propaganda”). So
much ink was spilled over why Nintendo made the “wrong” decision not going HD
and how, in a year or two, the Wii would be seen as obsolete once the HD systems
got their ‘real’ games. Those ‘real’ games are not making a dent into the Wii
sales and no slowdown is seen in the future for Nintendo. Instead of the
commentators admitting their error, they just apply the same error to a new
field. Instead of complaining about Nintendo not choosing HD gaming, they
complain that Nintendo doesn’t choose the PC model for online gaming. At the
very least, the commentators are consistent.
Upcoming Wii Ware Expansion
For a business exercise, I gathered some friends and said,
“Nintendo is disrupting. Let us brainstorm a way of how to disrupt the
disruptor.”
Many ideas came, but what we agreed would be the way to disrupt the Wii would be
to release a very simple console whose capabilities were not much better than
the GBA. Such a console would be unique in that it would only use digital
distribution; all the games would be as simple but as wild as the NES and
Commodore 64 games. This console would be targeted at those who love 2d gaming
but enjoy playing it on their television sets. Since online gaming came well
after 2d gaming’s demise, online would give 2d gaming a new life. Our little
console was a ‘crummy product for non-consumers’ and would attract former
gamers. Following the disruption model, the console would experience growth on
the population Nintendo was ignoring or didn’t seem desirable. As the little
console grew in raking profits, we could make the console move upstream and
slowly get more and more of the incumbent’s (Wii) market. We knew of how
insanely popular flash games were on the PC market so a console version of them
could really ride the wave!
It was a fascinating exercise, but Nintendo apparently sensed this
vulnerability. WiiWare appears to be a pre-emptive move to not allow a product
below even Nintendo’s downmarket tiers to gain a foothold.
Tetris is the perfect example to illustrate this vulnerability of disruption and
why Iwata keeps citing Tetris all the time in regarding Wii Ware. In the 8-bit
generation, games were progressing by leaps and bounds yearly let alone
the huge jump to the 16-bit generation. Not just in terms of graphics, but
gameplay was getting far more complicated and advanced. The first 8-bit games
couldn’t scroll or only scrolled one way. Now, entire worlds were being put into
the games. Tetris was a game that did not obey the industry’s pull for greater
sophistication. It used simple blocks and didn’t even need to scroll. It was an
inferior product that satisfied populations where other games overshot them. It
was the definition of a disruptive product.
However, Tetris could not be made today.
”In our business, too often people with a fresh idea don t have a chance. I believe if Tetris were presented today, here is what the producer would be told: Go back give me more levels give me better graphics give me cinematics and you’re probably going to need a movie license to sell that idea to the public. The producer would go away dejected. Today, Tetris might never be made.
”Nintendo understands the dominant business model. We work with it every day. And future Zeldas and Marios and Metroids are going to be bigger masterpieces than ever before. But, this does not have to be the only business model. We want to help you create a new one. One where your simple Tetris will be made.
”With Nintendo Revolution, we offer a combination of opportunities that simply can t be matched. Our controller allows for every existing form of game to take on a new character. It allows for game creation that is not dependent on just the size of the development budget. I consider our virtual console concept the video game version of Apple s iTunes music store.”
-Satoru Iwata, GDC Speech: “Disrupting Development”
One of the major reasons Microsoft's releases for Xbox Live Arcade (and likely XNA) are not exciting the market is because there is little difference from developing from the PC. Companies interested in making small games still found the PC to be a superior model. Many of the games that came to Xbox Live Arcade were already PC games such as Garage Games.
“Since I first announced the virtual console concept last year at E3, other people have become very interested in digital downloads. Others will offer such a service, but it will not be the same. Because for us, this is not just a new business opportunity, for us, this is true innovation true disruption. It is part of our DNA. The digital download process will bring new games to the widest possible audience of new players. Young people, older people, even those who never played video games before. When I think of what faces all of us right now, I imagine what it must have been like for the explorers who first set foot on a new continent. For them, it was impossible to imagine all the adventure that lay ahead.”
-Satoru Iwata, GDC Speech: “Disrupting Development”
A disruptive software product is one that, at first glance,
goes backwards. While the hardcore gamers shake their heads over the upcoming
Wii Ware (the more hardcore disapprove of something, the more successful it
becomes as this generation shows), they are missing that it is aimed at to be a
price variety for gaming. Not every game needs to be a $50 or even discounted at
$30. Iwata began using price variety for games like Brain Age to fine
success.
The WiiWare developers have been interesting to say the least…
“We spent a lot of time talking to Microsoft and that process was taking quite a while. The expectations they have, for something that’s supposed to be helping small developers, are high – they were asking for demos and lots of concept art and design documents, things like that. At the same time I’d been talking to Nintendo on and off, and then out of the blue they said, ‘Have you signed an NDA?’ I said ‘no’; they sent one through and I signed it, and the next day I was able to buy development kits.”Iwata says he wants Wii Ware to be a ‘battle of ideas’. The question is, as opposed to what? Ever since the release of high production games such as Wing Commander back in the early nineties, software has increasingly become a battle of budget: developing budget, production budget, marketing budget, and even distribution budget. To those who may be too young, in the days of the early 90s or 80s, almost all games had the same budgets but each was battling it out for ideas. It is not surprising that an older developer like Iwata would want to recreate those golden days of development.
Microsoft may well counter that its standards ensures a high quality of games on XBLA (a point open to debate), while WiiWare is yet unproven. But the worry may be losing developers to an option that, in purely financial and resource terms, is much more attractive. “It’s starkly different,” continues Watt. “We would have had to provide quite a sophisticated demo [for XBLA], to a level where it’s a slice of game that’s representative. That takes substantial work and investment, and there’s no guarantee it’s going to get signed – it’s bank-breakingly difficult for small operations.”
How much cheaper can it be to develop for WiiWare? “Significantly cheaper than if we were going to do it for PSN or XBLA. The development kits for Nintendo are roughly a quarter of the price than those for the other platforms. It just gets to the point where, as a small startup, I can buy four development kits for Nintendo, or one for someone else.”
–Nic Watt, Creative Director for Nnooo of the launch game “Pop”. Source: Next Gen
Why are you attracted to WiiWare?
“The simplicity and the self-publishing. It is very hard for a new start up to get a publishing deal these days and most games take over 2 years and cost millions of dollars. For me I wanted to start small and really learn the craft. Previous game designers have had to work on simpler systems and so really learn their craft, now with all you can do on the latest consoles it can be overwhelming and game designs can get too bloated. Going back to basics for me has been really great as I think we have really had to focus on what is fun.”
-Nic Watt of Nnooo. Source: Next Gen
Medaverse agrees with Nnooo on this.
“We wouldn’t have a snowball’s chance in hell of getting this game off the ground without WiiWare. We lack the necessary funds to get the game out on retail shelves and the Wii controls are intrinsic to the gameplay. We’ve always wanted to break into game development, but the barrier to entry was high enough that it was never possible without a publisher and the nightmares which come with having to compromise your ideas because your work is on someone else’s dime. WiiWare lowered the barrier to the point where it became a possibility for us.”
-Jesse Lowther from Medaverse, the developer of Gravitronix. Source: Next Gen
But what advantages are there publishing games on WiiWare as opposed to the more established XBLA?
”The main difference is that Nintendo is not aggressively controlling the content, and as such it is far easier to become involved with WiiWare by smaller developers with lower budgets. In fact, Nintendo's professed goal is for the service to carry VERY small budget games. So, while there may be a few really top notch games for the service, given the developer sweet spot they're aiming for, I would expect more experimental gameplay and watch out for new game genres being born there. Contrary to the notion bandied about that ‘anybody can develop for WiiWare’, realistically, the Wii is still a console platform and requires talented people on all sides of the development equation to build a compelling product. And Nintendo does have some standards that developers must meet. But in terms of hoops to jump through, there are fewer, and thus far seem fairly neutral towards developers and publishers in general.”
-Jason Hughes, president of Steel Penny Games. Source: VC Reviews
Emphasis is mine. At least the developers sound optimistic.
“On one side, you have new and unproven developers creating games, concepts and ideas which could be bizarre and outlandish, and on the other you have the fastest-selling console in history with a unique and revolutionary control scheme. It’s like two comets hurling straight at each other. I couldn’t tell you what will happen for sure, but I do know one thing for certain: I’m excited about WiiWare, as both a developer and a player.”
-Jesse Lowther from Medaverse, the developer of Gravitronix. Source: Next Gen
Online a Key Nintendo Motivation
In the latter part of 2007,
Iwata said Nintendo’s data uncovered two reasons why people
have not set up their Wii to the Internet:
1) Technical and psychological barriers to Net Connection
2) Insufficient software lineup to remove these barriers
The second one will be solved in time including the launch
of Wii Ware. But what can Nintendo do about the first reason?
Iwata revealed that Nintendo will open a Call Center, with
NTT East-Japan and West-Japan, to answer people’s questions about Wii Net
Connections. Nintendo and its partners will even provide new lines, necessary
devices, and even the in-house system set-up. Nintendo hates spending money,
yet they are going to build a call center to get people to connect Wii systems
to the Internet?
It is important to keep track what Iwata is saying because he is the
fountainhead of this generation. In previous articles, I’ve quoted Iwata as far
back as 2001, and there is a strong pattern that when Iwata says something in
public, Nintendo ends up doing it a year or two later.
-Why Sony and Microsoft cannot copy Nintendo’s online.
First, the two already think they have ‘won’ over Nintendo with their online
(the hardcore told them so). Second, both are firmly wedded to the PC context.
Third, both the PS3 and Xbox 360 were not designed to be online for 24 hours
which means whatever Nintendo does for that service cannot easily be copied.
Conclusion
”Whereas resources and processes are often enablers that define what an organization can do, values often represent constraints- they define what the organization cannot do.”This article may appear to be about Nintendo but is actually about Microsoft and Sony. The ‘shield’ of Nintendo is its motivations (caused by its new values). These motivations which enable Nintendo will be what constrain Microsoft and Sony. This means should Microsoft and Sony counterattack, these asymmetric motivations will act as shields for Nintendo.
-Clayton Christenson, Page 186. “The Innovator’s Solution: Creating and Sustaining Successful Growth”. (Emphasis is Christenson’s.)
A classic disruptive scenario is when a market entrant introduces a disruptive innovation of some sort and incumbents are motivated to ignore the innovation, for whatever reason: For example, the innovation does not meet the needs of incumbents' existing customers, or the incumbents' cost structures or business models are such that they would be unlikely to make money in the initial market for the innovation. As Christensen puts it, in this scenario the market entrant is protected by the "shield of asymmetric motivation" and has time to develop the "sword of asymmetric skills" that enables it to threaten and (in some cases) displace the incumbent.The ‘shield’ gives Nintendo time to develop its ‘sword’. It is this asymmetric sword that Nintendo will use to strike at its incumbents.
-Frank Hecker, Staff Member at Mozilla
”Asymmetric skills act as a weapon a company can brandish to attack its opponents.”
-Clayton Christensen, “The Innovator’s Business Plan: Identifying the Firm with the Sword and Shield of Asymmetries”
Asymmetric skills are the process and ability that the disruptor can do that the incumbents cannot. What can Nintendo do that Sony and Microsoft cannot? How did the analysts miss such a powerful element of Nintendo? And how did this generation begin with the premise that “Microsoft and Sony dominate; Nintendo is on the brink of irrelevancy” when now it is the other way around?
What is Nintendo’s ‘Sword’?
The Wii has an asymmetric ‘sword’ and ‘shield’. Incumbents,
beware.
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