MrGlubGlub
11-10-2005, 10:21 PM
Some summarized highlights from his recent speech regarding Nintendo:
As we stand here, with a new generation of even more powerful game technology about to be unleashed, there are very different strategies in play. Sony and Microsoft are racing toward the sale goal: shiny new versions of the same old games. And we're not suggesting that's wrong. After all, it's worked in the past. There will always be a market for the 'Big Bang.'
But it's not the only way.
--------
Nintendo, as I'll explain, is taking a second path -- the one less traveled, you might say. A path along which we plan to move millions of new players to new kinds of interactive entertainment. And as for current players? For them, brand new ways to play.
Is this really necessary? We believe the answer to that is, absolutely. Let me take a few minutes to explain why. This chart is familiar to most industry observers. It's the trend of the Japanese game industry revenues over the past several years. What use to work, well, isn't as working as well anymore. The chart speaks for itself. Of course, we want to believe that this can't happen here. Surely that 16 percent decline in revenues we saw in September, and the 24 percent drop in game sales, were flukes. Likewise, the last two years of sales declines are predicable approaching the back half of a cycle. And just wants -- business will be back up this year, maybe by double digits. Of course, a brand new hardware console and two new handhelds are necessary to turn the tide.
--------
Look at this generation compared to the first one 15 years ago. Research today tell us that among those 52 million machines already sold, a full 24 percent are part of dual-system households, and eight percent reside under roofs with all three consoles. The math shows that our 52 million systems have only reached a little better than 35 million discreet American households, about 31 percent of all current U.S. homes. Back in the 8-bit days, there was only one console -- the original Nintendo Entertainment System -- which meant there were no dual-households. So 31 million systems equaled 31 million homes. And that represented 33 percent of all American homes at the time. It's unsettling to see that in 15 years, we really haven't increased the percentage of game-playing homes. The population has grown, but our relative popularity really hasn't.
This is particularly perplexing because every year, we imagine millions of 10 or 11-year-olds convincing their parents to buy them their first home systems, while older players carry their game-playing passion further and further into adulthood. In this scenario, the industry should be booming. But instead, we're left asking, "where's the growth?"
--------
There's evidence that our popularity itself is on the decline. In September, Piper Jaffray conducted in-class surveys of high school students across the country. A full 75 percent of all respondents say their interest in gaming is falling. And that number itself has jumped 16 percent in a single year. The same study also highlighted the polarization of the game-playing market. The hardcore is harder than ever. That minority, who say they play games daily, is actually up a little bit. And the hardcore wants harder content. According to the ESRB, the percentage of games sold with a mature rating has grown steadily over the last several years. But at the same time, the casual players may be falling away. More and more respondents who used to enjoy games on a weekly basis now say they're doing so only monthly.
What does this all mean? Clearly, it's easy to imagine a roiling mass of older, techno-maniac, trash-talking, gotta-have-everything, gotta-play-everything aficionados. They are the current reality of the dedicated home videogame business and some will say, as long as these guys keep buying more, who cares? Nintendo does.
--------
So what's Nintendo's answer? Well, as a guy who's worked for everyone from Proctor and Gamble to ******ss to MTV, I know my way around the management section of my Barnes and Noble. And there are two recent best-sellers which I think really capture what Nintendo is all about right now. The first is blue ocean strategy. It cites successful companies who've looked beyond the bloody, red waters of ruthless competition. Companies who pushed the accepted definition of their markets and found so-called blue oceans, where they were able to expand business while they competition remained behind. In order to do this, those companies had to shift their focus from "what is" to "what can be."
--------
The second book, Innovator's Dilemma, extends this same thinking a bit further. The Harvard authors demonstrate that new markets are frequently created not by listening to the desires of current customers, but catering to what are seen as smaller, even fringe audiences. In reaching them, the technology or performance proposition initially can be seen as a step backwards. Instead, what is offered, and I quote, "typically cheaper, simpler, smaller and more convenient to use."
The primary example here is probably the iPod. It was not the first portable MP3 player, but the first one, coupled with iTunes, that offered a compelling combination of simplicity and ease of use. Looking at the current state of the videogame market, we believe there's a strong argument for expanding the audience beyond the current core players, attracting players by rethinking what a videogame means, and delivering our entertaining in a more convenient and affordable fashion.
Now, let me be clear. Am I suggesting that Mr. Iwata, Nintendo's worldwide president, personally sat down, read these books and then said, "Yep, that's it. That's what we're going to do!"? Of course not. But in fact, Mr. Iwata started saying things similar to what these authors describe, and he's been saying this even before either of those books was published.
--------
The resonance is clear. Expand the market beyond the core. Go where other companies won't. Don't worry about expanding current performance metrics, as long as you over perform on ease, simplicity and cost. In other words, build it right and they will come.
Now, we agree that drawing up a plan is one thing. Executing is quite another. As Jack Welch once said, "In real life, strategy is actually very straightforward. You pick a general direction and implement like hell."
We're beyond planning. We're already implementing like hell.
--------
Nintendo Wi-Fi meets the requirements for blue ocean market expansion. Make it appeal to new customers. Make it easy. And make it affordable. We think free is going to prove very affordable.
--------
Clayton Christensen points out that so-called sustaining, or existing market technologies, are inherently geared to deliver incremental increases in performance to customers who value what's already being delivered. A better description of the linear advances represented by both the new Sony and Microsoft consoles could not be written.
Christensen also observes that this kind of strategy frequently result in, "overshooting the market, giving customers more than they need -- or are willing to pay for."
--------
As I've said, the strategy for maximizing our return is twofold: attract new players and attract current players with new forms of play. Revolution's first announced appeal serves both groups: our virtual console concept. It not only offers direct backward compatibility to all GameCube software, but via downloading, to a library of games that spans the entire 20 years of Nintendo's console history. For the higher age group, this is a nostalgia trip -- and an emotionally-charged one, at that.
--------
The nostalgia card alone doesn't make a winning hand. For that, we've also got to offer the base players something they'll find irresistible. And despite its modest appearance, this is it. The freehand controller design for Nintendo Revolution once again builds on our unparalleled heritage of improving how a game feels -- beyond just how it looks.
--------
We deliberately delayed giving the full third party development community details on the freehand system because we knew we needed to show as well as tell. But now that they've seen it, the response from development groups is off the charts. For them, this is not just different -- it's liberating.
--------
We know freehand control also raises a logical question: won't an advance this dramatic cause difficulty for the porting of games between systems? The answer is little difficulty at all. If you want to retain your original control scheme, we make that easy by supplementing our new control system with a traditional controller expansion, if you will. It's a classic looking device that will hold the basic Revolution controller and allow game manipulation in traditional ways -- if that's what the developer chooses. In short, you can have it both ways. Familiar or revolutionary. One hand or two. Today's games or tomorrow's.
--------
I'll close today with one more thought from Jack Welch. He said: "Change -- before you have to."
--------
Did anyone else take their pants off during that?
As we stand here, with a new generation of even more powerful game technology about to be unleashed, there are very different strategies in play. Sony and Microsoft are racing toward the sale goal: shiny new versions of the same old games. And we're not suggesting that's wrong. After all, it's worked in the past. There will always be a market for the 'Big Bang.'
But it's not the only way.
--------
Nintendo, as I'll explain, is taking a second path -- the one less traveled, you might say. A path along which we plan to move millions of new players to new kinds of interactive entertainment. And as for current players? For them, brand new ways to play.
Is this really necessary? We believe the answer to that is, absolutely. Let me take a few minutes to explain why. This chart is familiar to most industry observers. It's the trend of the Japanese game industry revenues over the past several years. What use to work, well, isn't as working as well anymore. The chart speaks for itself. Of course, we want to believe that this can't happen here. Surely that 16 percent decline in revenues we saw in September, and the 24 percent drop in game sales, were flukes. Likewise, the last two years of sales declines are predicable approaching the back half of a cycle. And just wants -- business will be back up this year, maybe by double digits. Of course, a brand new hardware console and two new handhelds are necessary to turn the tide.
--------
Look at this generation compared to the first one 15 years ago. Research today tell us that among those 52 million machines already sold, a full 24 percent are part of dual-system households, and eight percent reside under roofs with all three consoles. The math shows that our 52 million systems have only reached a little better than 35 million discreet American households, about 31 percent of all current U.S. homes. Back in the 8-bit days, there was only one console -- the original Nintendo Entertainment System -- which meant there were no dual-households. So 31 million systems equaled 31 million homes. And that represented 33 percent of all American homes at the time. It's unsettling to see that in 15 years, we really haven't increased the percentage of game-playing homes. The population has grown, but our relative popularity really hasn't.
This is particularly perplexing because every year, we imagine millions of 10 or 11-year-olds convincing their parents to buy them their first home systems, while older players carry their game-playing passion further and further into adulthood. In this scenario, the industry should be booming. But instead, we're left asking, "where's the growth?"
--------
There's evidence that our popularity itself is on the decline. In September, Piper Jaffray conducted in-class surveys of high school students across the country. A full 75 percent of all respondents say their interest in gaming is falling. And that number itself has jumped 16 percent in a single year. The same study also highlighted the polarization of the game-playing market. The hardcore is harder than ever. That minority, who say they play games daily, is actually up a little bit. And the hardcore wants harder content. According to the ESRB, the percentage of games sold with a mature rating has grown steadily over the last several years. But at the same time, the casual players may be falling away. More and more respondents who used to enjoy games on a weekly basis now say they're doing so only monthly.
What does this all mean? Clearly, it's easy to imagine a roiling mass of older, techno-maniac, trash-talking, gotta-have-everything, gotta-play-everything aficionados. They are the current reality of the dedicated home videogame business and some will say, as long as these guys keep buying more, who cares? Nintendo does.
--------
So what's Nintendo's answer? Well, as a guy who's worked for everyone from Proctor and Gamble to ******ss to MTV, I know my way around the management section of my Barnes and Noble. And there are two recent best-sellers which I think really capture what Nintendo is all about right now. The first is blue ocean strategy. It cites successful companies who've looked beyond the bloody, red waters of ruthless competition. Companies who pushed the accepted definition of their markets and found so-called blue oceans, where they were able to expand business while they competition remained behind. In order to do this, those companies had to shift their focus from "what is" to "what can be."
--------
The second book, Innovator's Dilemma, extends this same thinking a bit further. The Harvard authors demonstrate that new markets are frequently created not by listening to the desires of current customers, but catering to what are seen as smaller, even fringe audiences. In reaching them, the technology or performance proposition initially can be seen as a step backwards. Instead, what is offered, and I quote, "typically cheaper, simpler, smaller and more convenient to use."
The primary example here is probably the iPod. It was not the first portable MP3 player, but the first one, coupled with iTunes, that offered a compelling combination of simplicity and ease of use. Looking at the current state of the videogame market, we believe there's a strong argument for expanding the audience beyond the current core players, attracting players by rethinking what a videogame means, and delivering our entertaining in a more convenient and affordable fashion.
Now, let me be clear. Am I suggesting that Mr. Iwata, Nintendo's worldwide president, personally sat down, read these books and then said, "Yep, that's it. That's what we're going to do!"? Of course not. But in fact, Mr. Iwata started saying things similar to what these authors describe, and he's been saying this even before either of those books was published.
--------
The resonance is clear. Expand the market beyond the core. Go where other companies won't. Don't worry about expanding current performance metrics, as long as you over perform on ease, simplicity and cost. In other words, build it right and they will come.
Now, we agree that drawing up a plan is one thing. Executing is quite another. As Jack Welch once said, "In real life, strategy is actually very straightforward. You pick a general direction and implement like hell."
We're beyond planning. We're already implementing like hell.
--------
Nintendo Wi-Fi meets the requirements for blue ocean market expansion. Make it appeal to new customers. Make it easy. And make it affordable. We think free is going to prove very affordable.
--------
Clayton Christensen points out that so-called sustaining, or existing market technologies, are inherently geared to deliver incremental increases in performance to customers who value what's already being delivered. A better description of the linear advances represented by both the new Sony and Microsoft consoles could not be written.
Christensen also observes that this kind of strategy frequently result in, "overshooting the market, giving customers more than they need -- or are willing to pay for."
--------
As I've said, the strategy for maximizing our return is twofold: attract new players and attract current players with new forms of play. Revolution's first announced appeal serves both groups: our virtual console concept. It not only offers direct backward compatibility to all GameCube software, but via downloading, to a library of games that spans the entire 20 years of Nintendo's console history. For the higher age group, this is a nostalgia trip -- and an emotionally-charged one, at that.
--------
The nostalgia card alone doesn't make a winning hand. For that, we've also got to offer the base players something they'll find irresistible. And despite its modest appearance, this is it. The freehand controller design for Nintendo Revolution once again builds on our unparalleled heritage of improving how a game feels -- beyond just how it looks.
--------
We deliberately delayed giving the full third party development community details on the freehand system because we knew we needed to show as well as tell. But now that they've seen it, the response from development groups is off the charts. For them, this is not just different -- it's liberating.
--------
We know freehand control also raises a logical question: won't an advance this dramatic cause difficulty for the porting of games between systems? The answer is little difficulty at all. If you want to retain your original control scheme, we make that easy by supplementing our new control system with a traditional controller expansion, if you will. It's a classic looking device that will hold the basic Revolution controller and allow game manipulation in traditional ways -- if that's what the developer chooses. In short, you can have it both ways. Familiar or revolutionary. One hand or two. Today's games or tomorrow's.
--------
I'll close today with one more thought from Jack Welch. He said: "Change -- before you have to."
--------
Did anyone else take their pants off during that?