Who is bringing Nintendo down?
Recent years have seen the decline of the old legend of Nintendo. Though its long-term competitors seem to be the biggest threats, I believe the current threats mostly do not come from the rivals.
In the era of the family computer (FC), Nintendo was almost the monopoly in the home console industry. Even after then, it stayed as a huge power for a long time. Only when it comes to the early period when 3D and CD-ROM became popular, Nintendo insisted to keep cassette as the game medium. This mistake brings Nintendo to the second place in the industry and Sony became the No. 1. However, Nintendo adopted a blue ocean strategy to catch up later. It differentiated itself from two other main competitors, Sony and Microsoft, by taking use of its advantage and targeting at casual and family gamers.
However, in the recent battle of generation consoles, Nintendo has almost lost completely. According to the data from VGChartz, the sales champion in 2014 was PS4 from Sony, with 18.10 million products sold in the world wide range. The second place was Xbox One from Microsoft, with 10.80 million. In stark contrast, the number for Nintendo’s Wii U was only 3.6 million in the same year and 8.8 million in total. It is widely believed that Nintendo is declining and many worry that if it can revive this time.
To better understand the situation of Nintendo, it is vital to reveal the embedded reasons for its decline. Here, I use porter’s five forces to illustrate who are the real competitors of Nintendo.
- Existing rivals. The current market dominators in the console games industry are Nintendo, Sony and Microsoft. The competition between the three has been on for decades, however, they all have their own positions. For Sony and Microsoft, they mainly target at hardcore gamers and their games are mostly with high quality. As aforementioned, Nintendo targets mainly at casual and family gamers, which brings it to a blue ocean. Overall, rivalry competition for Nintendo is persistent but not fatel.
- New Entrants. As the high entry barrier, there is limited space for new entrants. Also, due to the existing stable industry structure, new entrant has limited impacts to the dominating companies like Nintendo.
- Bargaining power of suppliers. For all of the market dominators, they are both game hardware manufacturers and software developer and distributors. They have integrated many levels of the industry chain. Also, they have developed solid and good relationship between other game developers and distribution channels. Though there may be some conflicts between the developers and the three dominators due to technological issues and profit allocation, the later have the most bargaining power.
- Bargaining power of buyers. It is a relief for all the three companies that their high quality products meet the consumers needs to a large extent. Though they have different segmented customers, the number of their target customers is stable and large. Luckily, these customers tend to be very loyal to the brands.
- Substitutes. In essence, this is where the different competitions come from. Though there have been increasingly large number of choices for entertainment nowadays, the “rigid demand” for high-quality games is consistently strong, especially for hardcore gamers. The excellent gaming experience is not easy to be replaced by other entertainment methods. Thus, for Sony and Microsoft, the threat from substitutes is not vital. However, for Nintendo, which targeting at casual and family gamers, this has become the biggest threats. With the development of mobile devices and the boom of mobile social games, most casual gamers can play games easily with their mobile phone or tablet PC. Also, these casual gamers usually do not have much need for the high-quality game experience (high pixels, good story narrative in games, etc.), they can be easily satisfied with the mobile games. Hence, the target audience of Nintendo is at loss.
Overall, it is easy to feel that the decline of Nintendo is due to the fierce competition among the existing rivals, namely Sony and Microsoft. However, this is not the real reason. To explore deeper by looking at their positioning and targeting, we can find that mobile social games are the biggest competitors for Nintendo at present.