Can the Wii U Rescue Nintendo? Lessons for startups with a fickle fan base

Nintendo released the Wii U, its sixth home gaming console, on November 18, but instead of the typical launch furor, consoles were still widely available two days after release. This humdrum response to a new console generation might seem puzzling.

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After all, Nintendo’s prior generation, the Wii, made more money than any console in the history of gaming. Look beyond the revenue, though, and trepidation seems like the only acceptable response.

A Brief History of Big N
Nintendo first gamed in 1889, although without its now-famous plumbers with panache. In 1889, Nintendo Koppai opened for business as a gaming-card company. (Nintendo continues to manufacture playing cards in Japan.) The company went on to experiment in many odd and unrelated ventures, including short-stay hotels (ahem) and instant rice, before finally catching the electronic gaming bug in 1974. Nintendo entered the global marketplace with handhelds in 1980 before finally launching the Famicom, or as it was known in North America, the Nintendo Entertainment System (NES), in 1985.

The NES replaced the Atari as the industry standard, and Nintendo remained atop the gaming pile until 2001. Sony’s Playstation 2 and Microsoft’s Xbox systems dominated the generation. Nintendo’s Gamecube excelled in niche and nostalgia but lagged in technical prowess. In a generation dominated by the rise of first-person shooters and more violent fare, Nintendo’s “family-friendly” image caused its market share to dwindle despite overwhelming support for Nintendo’s first-party titles.

Nintendo wholly or partially developed eight of the top 10 selling Gamecube games. Sales for multi-platform games lagged. Third-party developers sighted the Gamecube’s proprietary disc format and non-existent online presence. Both Playstation 2 and Xbox could use DVDs to store games of much larger scope. Developers often released different (and generally lackluster) versions of the same game with workarounds and higher video compression.

It was on the Gamecube, however, that Nintendo first began experimenting with alternative game controls and connectivity. Select games offered broader gameplay abilities with the connection of the Gameboy. Though the benefits were minimal, the seed had been planted for the kind of console-to-portable interaction that would eventually become the concept for the Wii U.

But First, the Wii: Bringing ‘Social’ Back
If Nintendo were a character from ‘80’s cinema, it would be Ducky from Pretty In Pink—the sincere and doting childhood friend who pretends to be just a friend but secretly wants more. To extend the analogy too far, Sony would be Andrew McCarthy’s Blane (witless, easily impressionable), and James Spader’s Steff would own the Microsoft role (controlling, often creepy).

Launched in North America on November 19, 2006, the Wii outsold the Xbox 360 (released a year prior) by September 2007, becoming the most profitable home console in the history of gaming. While Sony and Microsoft sold their over-teched, under-priced consoles at a huge loss, Nintendo relied on the novelty and simplicity of its new hardware innovation to move units.

The Wii introduced IR (infrared) and motion-control gaming to the world, for better and worse. Nintendo billed the technology as a change in the fundamental way we would play games. Stand up and move, they encouraged. The concept—that the movement in the game mirrors your movements—sold gaming consoles to demographics the industry had previously thought unreachable (adult women, seniors) on the appeal of its potential for low-impact exercise. Nintendo succeeded in bringing the social component back into gaming by removing that intimidating twelve-button controller, thereby allowing the entire family to play along.

The Dark Side of Mass Appeal: Third-Party Problems
Eventually the appeal of swinging your Wii remote like a tennis racket or bowling ball with no deeper payoff eroded. Many of these basic motion games proved to be shallow and repetitive, relying too heavily on clumsy motion control—damned by the same technology that made the system an overwhelming success.

Beyond The Legend of Zelda: Twilight Princess, early adopters sifted through a selection of uninspired games that were unsure how to incorporate the controls into a rich gaming experience. Motion controls simply could not offer the precision and timing most traditional video games required.

Nintendo eventually introduced the Wii Motion Plus add-on to improve timing and response. The control problem continued, however. While the Wii has boasted some truly unique and engaging games, only a few of those made good use of motion control. Nintendo’s fanbase met the company’s reliable franchises with placid indifference: For every Super Mario Galaxy or The Legend of Zelda: Twilight Princess, Nintendo served up reliable rehashes with little innovation and motion controls shoehorned into the gameplay mechanics (see Mario Kart Wii and Super Smash Bros. Brawl).

Normally, the onus wouldn’t fall squarely on first-party games to move software, but the Wii only exacerbated the difficulty of selling third-party games on a Nintendo console. Its top 20 games (in terms of units sold) contained only four third-party titles, three of those being Just Dance 1, 2, and 3.

The average console expects more than 80 percent of its titles to come from third-party sources. The Wii’s, to date, has hovered around 55 percent.  More damning still is third-party return on investment. Two of the highest rated third-party Wii games (per Metacritic, a composite of all game-review sources), Zack & Wiki and Sin and Punishment: Star Successor, sold just 120,000 and 140,000 units respectively.

To put this number in industry perspective: Consider that Call of Duty: Black Ops 2 sold one million copies from one vendor alone the day it launched. This isn’t a perfect sales comparison, but it reflects how little third-party-exclusive Wii titles matter in terms of cash and visibility to their developers.

The staggering number of Wiis sold simply does not translate into widespread software sales. The casual gamers who comprise a large portion of Wii owners drive sales of dance and fitness titles, not sport or shooter games, traditionally big-ticket gaming titles.

Advance third-party support for the Wii U is already portending a potential pitfall. The largest third-party game developer, Electronic Arts, has shown little interest to date in the Wii U. Although it offered three titles at launch, all are ports from previously released games (Madden Football, FIFA, and Mass Effect 3). A lack of EA support might prove damning: Recall the premature demise of the Sega Dreamcast, a terrific console that received no development support from EA (primarily due to an inhospitable licensing negotiation) despite a long and prosperous partnership between Sega and EA on the Sega Genesis.

The Bottom Line: Cash Rules
Nintendo reported first-half losses of $351 million in 2012, corresponding with the decline of the Wii’s profitability and the lead up to the Wii U release. The Wii U likely won’t end up the sad sack Dreamcast story of the eighth console generation, but Nintendo has to find an industry foothold before Sony and Microsoft knock down its doors with their new consoles in 2013.

And so the question remains: Can Nintendo sell the Wii U to a jaded and distracted consumer base, despite technological advances that are double-jumps and bounds ahead of anything we’ve ever seen in a Nintendo console?