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Nintendo's Long Game

DSi isn't just a product refresh - it's a broad hint about Nintendo's breathtaking ambition

We finally have European and US launch details for Nintendo's latest handheld hardware refresh - and it's fair to say that the DSi's early characterisation as something of a damp squib isn't being challenged in any way. Boasting minimal new functionality, a vastly over-inflated price tag and with the spectre of region locking looming over it for the first time in the history of Nintendo's handheld machines, the DSi is unlikely to ignite a revival for the DS at retail.

Then again, it doesn't actually need to. The DS isn't being refreshed in the face of flagging sales, after all - unlike most console hardware updates, the DSi isn't being introduced either to fix major problems with the DS Lite hardware (there aren't any, really) or to open the system up to a fresh demographic. It's also fairly clear that for now, at least, it will continue to be manufactured and sold alongside its (significantly cheaper) older brother, the DS Lite.

All of which begs the question - why bother? The upgrade from the orginal DS to the DS Lite, like the upgrade to the GBA SP in the previous hardware generation, made bags of sense. The devices which those models replaced were seriously flawed, hampered by unpleasant, unappealing industrial design, poor displays and so on. The DS Lite, however, has been one of the most successful consoles ever, and it's telling that the DSi doesn't actually update the design or fundamentals of the machine in any significant way.

To this extent, the launch of the DSi feels, to me, like a slightly unusual two-pronged approach from Nintendo. Firstly and most obviously, the company wants to get a hardware refresh onto store shelves - winning itself a refresh of its point of sale materials and in-store offers, and keeping the DS at the forefront of people's minds. The quiet success of the DS threatens to breed complacency. I've lost count of the number of times I've heard "oh yeah, and the DS too" tacked on as an afterthought, despite the fact that it's the industry's best-selling platform. The DSi will help to refocus minds on the system.

In a sense, looking at this strategy and the small incremental changes being made in the DSi, this feels like exactly the sort of strategy you'd expect from a consumer electronics company - as distinct from a videogames platform holder. It's hard to escape the sense that Nintendo views this refresh of the DS rather like Toshiba or Samsung view regular updates to their DVD players or televisions, or Apple views its annual minor updates to the iPod range. Bump the model number up, fiddle the functionality slightly, and pop it out onto the market - not an exciting new product launch, but a necessary rolling refresh of an important workhorse.

The fly in the ointment with regard to this theory is the price point. Here, what I'd argue is Nintendo's instinct to ape the consumer electronics model runs headlong into Nintendo's most basic and primal of instincts - profitability. More so than any of its rivals, Nintendo focuses every single one of its actions on the bottom line. It eschews the "razors and razorblades" model which has come to define the console industry, it repackages old technology and sells it at new prices, and ruthlessly exploits its back catalogue like no other firm. Gamers might suck their teeth at such a characterisation; shareholders and business partners of the firm, of course, find it incredibly reassuring. The fact that the firm's innovation and quality continues to impress despite this approach stands as proof that commercial and creative concerns can co-exist peacefully rather than being in constant struggle.

This time, however, Nintendo may have taken its insistence on profitability a little too far. For the DSi to make a proper splash in the market, it should have entered at a price point not significantly above the DS Lite - with the Lite itself being given a small price drop to differentiate itself from its new sibling, conveniently lowering the barrier to entry to the DS ecosystem for new consumers.

That, I suspect, was the original plan - but instead, the incredibly strong Yen has driven Nintendo to keep its price point high. In the UK, the DSi will cost more than an Xbox 360. The price differential between the US and the UK isn't that significant once you factor in the UK's VAT, which is included by law in all prices, but that's at today's exceptional exchange rates. Should the rates return to some semblance of normality in the coming months, the UK price will look nothing short of ridiculous - and regardless of the exchange rate, on a purely internal view of the pricing, the DSi is wildly expensive.

One can see Nintendo's dilemma. Launching the DSi at a sensible price point would have meant taking a major hit to the firm's margins, since the device's manufacturing costs Yen while its sales come in pounds, Euro and dollars. Instead, Nintendo has opted to reduce the system's sales potential while maintaining its margins. It's not a terrible business decision, but it's not likely to be popular with consumers - or retailers - and it will definitely ensure muted success for the DSi.

However, I believe that there's a second reason for the existence of the DSi, whose consideration may outweigh the need for significant commercial success. This, I suspect, is a testbed console. It represents Nintendo trying out new technologies and concepts which will be important in the future - not the obvious technology, like the cameras mounted on the device, but the technology under the hood. The DSi sports the ability to utilise digital distribution, upgradeable firmware to help thwart pirates (in theory, at least) and some peculiar region-locking technology which has raised hackles among gamers around the world.

I don't think that any of those factors are going to be particularly important to gamers in the developed world who buy a DSi. Region locking applies only to DSi-specific titles, of which there will be few, if any - what developer is going to ignore the installed base of 100 million DS and DS Lite consoles to develop a title solely for DSi? The upgradeable firmware may make life difficult for pirates using R4 and similar cartridges, but they'll just continue using their DS Lites - and besides, given Nintendo's huge success with demographics for whom cartridges like that are either unheard of or a black art, it's unlikely that the firm loses too much sleep over the R4 and its ilk.

However, the way is clearly pointed for Nintendo's next step. The high price point of the DSi belies the incredibly low cost of the device's components. The chips and components in a DS are all old technology, and Nintendo is the master of monetising old technology - consider the Game Boy, a system which allowed Nintendo to keep charging a premium for Z80 processors (similar to those used in the Sinclair Spectrum ZX81 and the original Pac-Man arcade machine) right up to the end of the 90s.

What this means is that if Nintendo so wished, it could manufactured a somewhat stripped-down DS console and sell it at an incredibly low price while maintaining a profit margin. Add in solid piracy protection and an online store, along with some region locking technology to prevent feedback into high-value markets like Europe and the USA, and you have a console which is ready to crack the burgeoning markets in China, South-East Asia, Latin America and India.

DSi feels like a trial run of exactly those technologies - and exposes, I believe, the true extent of Nintendo's ambitions. Global financial conditions make this a bad time to try and launch an entertainment business in the giant developing economies, so it may not happen this year or next - but when the market begins to recover, Nintendo will have a product ready.

Filled with tried and tested technology, built at an extraordinarily low cost and coming off the back of huge success elsewhere, this new handheld will tap into a market of well over two billion aspiring consumers. DSi is a stepping stone along the way; it may not be a thrilling launch for us in Europe or the USA, but it points towards a truly fascinating future.

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Latest comments (1)

I partially agree on this.

With all the constant, yearly sell-outs of the DS & Wii, you have to wonder if Nintendo has not been kicking itself for starting with a higher initial price point for both products (especially the Wii). They could have *easily* charged an extra $50US for it (especially in the first 12 months, and in the US) - and it would have still sold out.

After all, its easy and effective to drop the price of a product in the future - and it makes for great marketing.

But raising the price of a consumer product (like these) is basically impossible.

Nintendo would be pretty confident of DSi sellouts for several months (at least) after launch in Europe & US - they are (after all) constrained by production levels.

If they can sell the first 10m DSi units at $50 more than they would normally have priced it at - that is an extra $500m in revenue (over 1-2 years). Very, very easy revenue.

...

Once they have developed some killer DSi software, and the DS does seem to be weakening - they can drop the price point of the DS - and drop the DSi to the price point of the DS. I think its a great strategy.

I think they also want to give the market some time to develop digital DS(i) software - before really driving the message to the masses.

You would have to think Nintendo have seen the success of the AppStore - and really want a slice of something similar.
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