More Marginal Moves from Nintendo

Will Face Tracking and NFC Save the Day?

Nintendo recently began to roll out updated versions of its 3DS line. The devices — the New Nintendo 3DS and larger New Nintendo 3DS XL — have an additional analogue controller, two extra gaming buttons, a more powerful processor and improved battery life. The devices use the front-facing camera to track the user’s line of sight, improving the system’s stereoscopic 3D output.

The company has also included an NFC chip in the new 3DS consoles, enabling wireless file transfer between devices as well as support for Nintendo’s Amiibo figurines. These small plastic figures can interact with games to add a physical dimension to play. They have proved popular in Japan, with several product misprints having sold for thousands of dollars online.

The original Nintendo 3DS, announced in 2010, provided the market with a trial for 3D displays in portable devices. The company wasn’t entirely alone in such an announcement, with Motorola and Samsung in the process of releasing 3D-capable handsets at the time, but Nintendo was evolving a successful and established product line with 3D technology. It has sold a cumulative 45 million 3DS units in four years of sales. However, compare this with the pace of sales of the original DS devices, which sold more than 150 million over 10 years, and it suggests the company might be slowing down.

Nintendo continues to have a dedicated fan base, but CCS Insight believes that demographics are shifting away from the DS line as younger children become comfortable with smartphones and tablets which offer an ever-expanding library of good quality low-cost or no-cost games. Nintendo’s titles can cost up to $40.

Nintendo’s New 3DS is likely to meet a shrinking addressable market given the dynamics of adjacent products. The company has a valuable library of gaming characters like Pokémon, Super Mario Bros and Zelda, but continues to face losses owing to the consumer shift to powerful smart devices.

In 2010, CCS Insight predicted Nintendo would enter the mobile market with a connected portable gaming device as a response to the growing competition from smartphones. Average selling prices of smart devices were considerably higher than Nintendo’s game consoles at the time, but we predicted that smartphone prices would erode as volumes picked up, and that they would become competitive with dedicated other mobile products like the DS. This is now the case: the New 3DS costs $200 in the US, in competition with subsidised and hand-me-down iOS and Android devices.

We are surprised that Nintendo has not made bolder moves given its current position. The company has a prized core in its intellectual property, but observations of the fast falls of other major players should act as a wake-up call. Marginal upgrades are unlikely to score many points at this stage.