Turning the Tanker
It's not just the 3DS that Satoru Iwata needs to turn around - it's Nintendo's whole business strategy
It's not been a good week to be Satoru Iwata. Ever since the launch of the Wii, he's been the CEO who can do no wrong - from his company's soaring sales and borderline ridiculous market capitalisation, through to his personal performances as consistently one of the most interesting, insightful and passionate speakers at GDC each year. Yet in the wake of the 3DS price cut, the shine has definitely worn off the Nintendo boss.
In recent years, certainly, he's been Teflon-coated - accusations of abandoning core gamers were easily rebuffed by pointing to sales figures (and the reality of the company's line-up, at that), while regular claims that the Wii market had collapsed were met with the hard reality that for a long time, "collapsed" Wii sales were still higher than rival consoles at their peak. However, I'd argue that Iwata started to lose his lustre significantly before the failure of the 3DS.
For Iwata to grasp the nettle and bear the pain of this U-turn is a demonstration of strength, not weakness
I'd peg the start of the real concern about Iwata's leadership to his GDC keynote last March. As ever, it was a fascinating speech - but where previous years had seen Iwata deliver extended love letters to game development creativity, this year's talk revolved around a stark warning regarding iOS gaming, and more specifically, the very low price points of iOS software compared with traditional handheld games.
There were two ways you could look at what Iwata said at GDC. The charitable interpretation, which most Nintendo fans chose to follow, was that Iwata was recognising the threat of iOS-style markets and encouraging developers to focus on developing high quality games for high price points, in confidence that consumers would recognise the difference and be willing to pay.
The less charitable interpretation, which was rather more widespread within the games industry itself, was that Iwata was doing a credible turn as King Canute - standing on the beach and commanding the tide not to come in. Up to this point, Nintendo hadn't shown the slightest interest in selling anything other than retro titles at price points lower than the traditional full-price level for its handhelds, which had made quite a few people a little nervous in the face of the enormous changes taking place in handheld devices. Now it seemed like people's worst fears were confirmed - Nintendo's strategy wasn't going to be to change, adapt and embrace, it was going to be to shout (very politely) at people for ruining the market with their cheap games. Cathartic, perhaps. Constructive, perhaps not.
In the wake of last week's painful and humiliating admission of the company's disastrous missteps with the 3DS, you might expect Iwata's tune to have changed. I say painful and humiliating here in the most positive light possible; I fully believe that the Nintendo of old would have borne the 3DS' sales figures in stoic silence, stuck to their guns, kept their chin in the air and calmly walked into another decade of near-irrelevance. For Iwata to grasp the nettle and bear the pain of this U-turn is a demonstration of strength, not weakness.
The tune, however, is eerily familiar. In the briefing accompanying the company's financials - the same financials which precipitated the 3DS U-turn itself - Iwata turns briefly to the matter of smartphone gaming, but only to deny that it's got much to do with Nintendo. The company's research apparently shows "no causal correlation" between the fact that increasing numbers of consumers are carrying around game-capable phones with vast libraries of cheap or free software, and the fact that consumers don't seem to want to buy Nintendo's new, expensive, dedicated handheld device, whose software is all very expensive.
Okay, it's a cheap shot, but it's easy to be snarky about market research and polling like this - my experience of it in most countries, but especially in Japan, has been that it's primarily aimed not at finding the right answers, but rather at finding the right questions which will deliver the answers that your bosses want to hear. However, while the substance of Iwata's short statement might look like exactly the same party line which was being peddled at GDC, the phrasing and context has changed my mind, at least a little.
Bluntly, after GDC, I thought Iwata had lost sight of reality. His company is an enormous oil-tanker, and he had blanched at the idea of turning it around from the decades-old model of producing expensive, monolithic software onto a new course which would be more competitive with the market emerging around him. Easier to be blind to the dangers ahead than to try to make a huge, conservative Japanese company act like a small, nimble one - so by accident or design, Iwata just didn't get it.
Now, tentatively, I think I want to retract that sentiment. Taken away from the context of his wider attack on App Store markets and smartphone gaming (and really, "attack" isn't a fair word - Iwata is a gentleman, and as such it wasn't so much an attack as a damning with faint praise), his statements in the financial briefing take on a slightly different tone, one that's rather more in line with the charitable interpretations of his GDC speech.
The core message now seems to be that Nintendo does really recognise the threat of smartphone gaming - and that it understands that it's an external threat which can't be driven away by shouting at developers, much less by shouting at consumers. Rather, if Nintendo wants to retain its present business model, it's got to fight for it, and the only way to do that is to create software that's so obviously, demonstrably better than anything in the smartphone ecosystem that consumers will be willing to pay the higher price.
One can't help but wonder if this week Iwata's rediscovering some of the fire in his belly that drove the creation of the DS and Wii in the first place
In this, I think Iwata does actually "get it". He knows that what Nintendo faces in the smartphone market is not just a threat from a rival game maker, which is what it faced down when Sony (and Sega before them) pushed into the handheld space. Rather, it's an existential threat to the entire dedicated handheld market.
Iwata understands something that many commentators have failed to grasp - that smartphones don't have to take 100 per cent of the handheld market in order to kill dedicated systems. There's a percentage point of the present market below which it just won't make commercial sense to release handheld games on dedicated platforms, no matter how enthusiastic the remaining percentage of users may be. I wouldn't risk a bet on what that percentage point may be, but I'm pretty sure that it's a logarithmic scale - with users switching to smartphones on one axis, and developers abandoning dedicated handheld devices on another.
So Nintendo fights back, and initially it does it in the way it best understands - by manipulating the price points of its hardware, and trying to get killer apps out onto the market in software terms. That's the kind of strategy that has won console wars for years, after all.
Yet this isn't a console war - it's a war of competing business models, and that, I believe, is where Nintendo's present strategy would fall short in the end. A lower price point and a better line-up of software will do wonders for the 3DS, especially now that PlayStation Vita is going to miss Christmas in most of the territories where Christmas actually matters, but it won't be enough to keep the enemy away from the doors forever.
Nintendo needs to embrace change - and that doesn't necessarily mean having to take drastic steps from the outset, or abandoning the hardware market (as some commentators have suggested for decades), but it does mean having to do more than just pay lipservice to the emergence of new markets. Vitally, it also means embracing online services - something which the 3DS has improved upon, but which is still a huge hole in Nintendo's armour. The "normal users don't care about online" argument was totally valid five or ten years ago - today, it's outdated and plainly wrong.
For all that, I think the fact that Iwata is recognising Nintendo's need to react to the emergence of iOS is a positive, and I think that the trouble faced by the 3DS will give him the mandate he needs to make big internal changes at the company in order to face this threat. I'm not sure he quite knows what those changes are just yet - and I'd be a little dubious of anyone who claims to have all of those answers right now - but I'm not willing to write off Nintendo, no matter how humbled they may now look after the events of last week.
Most of all, I'm not prepared to write off Satoru Iwata, because I remember the position that Nintendo was in when he took the helm, and I've seen how he turned the entire company around. He's obviously a CEO who performs astonishingly well when his back is to the wall - and one can't help but wonder if this week he's rediscovering some of the fire in his belly that drove the creation of the DS and Wii in the first place. If so, what happens next will be fascinating to watch.