Nintendo's motivation behind the DS and the Wii wasn't something as short-sighted as "profits" from "casuals", but more along the lines of them seeking to secure longterm survival in a global economy that is facing serious upheaval. Nintendo has existed for over a hundred years, and a company that old doesn't get to be that old by routinely making bad business decisions in the longterm, or thinking that selling a product for a loss is a an awesome business strategy.

Speaking of business strategies, let's talk about Sega for a moment. Sega had the luxury of making games and game consoles during a period of economic growth. Yet they still exited the console business, despite the Dreamcast being well-received and to this day looked back upon fondly by gamers. So why did Sega leave the console business when they seemed to be getting their second wind with the Dreamcast?

The answer is the Sega Saturn, the Sega CD, and the 32X. Sega blew so much time, money, and resources on these flops (the Saturn financially flopped), that by the time Sega made the Dreamcast, they had simply run out of money. They could no longer afford to be in the console business. So they bowed out and decided to make games for the companies left standing.

Sega was a very good company that put out very good games, games that to this day many people consider classics. But this illustrates an important point: A game company can make good consoles and awesome games, but they still fail to be financially savvy, which ultimately winds up being their downfall sooner or later. But this hasn't happened to Nintendo yet, even in all it's years in the entertainment business. Why is that? Because as I illustrated in an earlier post, Nintendo understands business.

And to understand business, you must understand your customers first, and know how to look at business in the longterm second.

Up until recently, Nintendo was not interested by the fact that they were "losing the console wars." Never has Nintendo sold their consoles and handhelds for a loss ever since they entered the console business. While Sony and Microsoft hemorrhaged money with the Playstation 2 and Xbox (and now with the PS3 and 360), Nintendo was making money off their consoles, right from the get-go. They were perfectly content with "losing" the console wars, but then something seemed to light a fire under their ass. Before they talked about the "Revolution" and the Dual Screen, they were talking about "disruption" and "Blue Ocean Strategy" and expressing their concerns that the gaming industry as we know it might be facing serious decline. Nobody listened.

Now of course the reason that Microsoft and Sony didn't seem to mind selling their consoles for a loss was because they aren't just in the games business. They do other things. They saw games as an opportunity to tap into a brand new revenue stream to help secure their companies' primary points of interest. What helped Sony with this was getting a great deal of third parties secured to make games for their platform, something Microsoft later replicated with the Xbox. What aided them in all this was the fact that the world was enjoying economic prosperity and population growth. It was a tidal wave of good fortune that they rode all the way to the bank.

But neither Sony or Microsoft banked on that tidal wave crashing itself on the rocks and very quickly receding, leaving both of those companies dashed upon the jagged edges of financial ruin. When your products are too expensive for people who no longer have the luxury of economic growth to waste their money on, your high-cost-of-entry gaming becomes a liability to customers and to the industry itself. The values that brought the game industry alleged prosperity now becomes a burden that is slowly breaking the financial back of the game industry itself.

If you want a contemporary example to liken the dilemma that the game industry now faces, then we needn't look any further than at the businesses that have come crawling to Washington asking for a bailout. These companies took the economic growth for granted, and instead of preparing for the day that the growth would recede, they blew their money on short-term products that would ultimately lose their longterm value to customers once money started to get tight once more. These companies have only themselves to blame for their short-sightedness, but yet have the gall to ask taxpayers to foot the bill for their ineptitude.

Sega, like Nintendo, was only in the console business. Nintendo isn't run by a bunch of financial yokels. They very likely saw Sega's departure from the console business as a sobering reminder of the fact that you can be riding high, but still ultimately fail because of a few financial missteps. Because gaming is their primary source of revenue, they don't have the luxury of merely "throwing money at the problem" like Sony and Microsoft does. They were concerned about what would happen if that economic prosperity came to an end. They weren't interested in the "war" with the other consoles, seeing as the only war they were worried about winning was having the right to remain in the gaming business in the foreseeable future in the eyes of consumers.

"But the game industry is doing just fine, they're still making profits! You're just crazy!" you might say. I'm sure that's what the business geniuses during the Atari 2600 era thought when they flooded the market with crappy games nobody wanted. They blew their financial load and the gaming industry as they knew it back then went completely tits up, until Nintendo took a defibrillator to it with the NES a few years later. And trust me, they had to try real hard. Like, "Ed Harris beating the shit out of Mary Elizabeth Mastrantonio in The Abyss to bring her back to life."

The primary difference between the decline that the industry faces today and the collapse that destroyed the industry back then, is it happened almost instantaneously during the Atari Era. You could liken the demise of the game industry at the time as an accidentally self-inflicted gunshot to the head. They never knew what hit them. Today, the industry is suffering from being gutshot. It's very painful, but it's not immediately fatal. In fact, it doesn't have to be fatal.

Microsoft and Sony and Nintendo are like three oil companies that are drilling in the same oil field, but have been oblivious to the fact that they are eventually going to run out of oil Nintendo, realizing this, has gone off to drill for oil elsewhere, where they are forced to use different methods to get at that oil, meaning that they have to change how they've been doing things and take risks they never took before. In the meantime, Sony and Microsoft have continued to drill in the same field, and finally they and the third parties are beginning to realize they have passed their peak oil production. There's nowhere else they can go now but down.

But they seem to be in denial. They won't openly admit that the well is going dry. They try to spike their production numbers by charging their customers for downloadable content, charging them to play on Xbox Live, jacking up the price of their games, and nickel-and-diming tactics along with any other sorted means to try and make themselves look like they are financially better off than they really are. Even though they've spiked their revenue, it does not change the fact that they are now well into the declining end of their customer bell curve.

Now Microsoft and Sony are ready to start drilling for oil with Nintendo, but unfortunately "drilling" isn't going to work with the audience that the Wii and DS are catering to. They don't care about HD graphics and processing power. They don't care about online gaming, and because Nintendo has their fingers' on the customers' collective pulse, they never put much effort into the Wii's online because playing games online is not something that the Expanded Market values. Nintendo didn't neglect their online because they were "lazy". They didn't bother with it because that's not what their customers care about.

That's where focusing on your customers and looking at your business in the longterm has paid off for Nintendo and where it is going to utterly decimate Microsoft and Sony. They see what Nintendo's done, but they don't understand how they did it. Nintendo sees customers, whereas Microsoft and Sony see "casuals" as some kind of mythical "demographic" and a potential revenue stream to exploit. They begin trying to drill this market based off the notions of "power" and "graphics" "online capabilities" and "media hub", and doing motion controls "better" than Nintendo, when those things are not what attracted the Expanded Market to the Wii and DS in the first place.

Right behind them are the third parties, ready to exploit the "casuals", only the Expanded Market isn't buying what they are selling. On the 360 and PS3 third parties could just throw money at graphics and being "edgy" and expect the money to roll in while stifling competition with the high-cost-of-entry. But the Wii and DS get their oil by using different techniques and methods. The Expanded Market isn't interested in photorealism and processing power. The third parties have done things the old way for so long that they are at a complete loss as to how to get money out of this new market. So when their games flop, they blame this market when the blame truly lies entirely on themselves.

Even worse (for them), is that because they are forced to compete for this new market on different values, this means that their deep coffers of money are completely useless in the face of smaller third parties who are using these new values to make games that sell better than the games made by the third parties with more money and resources to throw around. They try to compete on production values when that's not what the Wii's audience values. So they make games that nobody on the platform values, and then cry about the fact that nobody understands them when it is in fact they that have failed to understand this new market and adapt to it. This is also why you continue to hear the third parties parrot about Nintendo making a "HD Wii." They don't actually like to compete with other companies.

Also note: I said the reason that the game crash occurred during the Atari Era was because the market got flooded with crap games. Now let's look at current events. A lot of major titles and releases that were slated for the holiday season are getting pushed back all the way into next year. Why? If the game industry is really having all this "growth", then there should be plenty of customers around to buy all your games to recoup your development costs...unless that is in fact not the case. The truth is that the core gamers haven't been growing. That market has become stagnant and has been steadily declining. They are either leaving gaming or changing how they game due to real life and responsibilities, which very likely means what the Wii and DS offers them now becomes much more appealing than what the rest of the game industry offers.

If the Core Gaming market was healthy, then there would be no need for developers to push back their games and avoid competing with each other. But they can't because there's not enough of those gamers (and their revenue) to go around for all of them. There are too many games with over-inflated budgets and not enough demand for them to recoup the costs. The Core Market is eventually going to collapse. Reality is eventually going to come back to bite them in the ass, no matter how hard they try to stick their fingers into their ears and ignore the train that is coming straight for them.

But sadly, for the game industry anyway, what they want is not what the customers want. Nintendo understands this, hence their success. Either Sony, Microsoft, and the rest of the game industry adapts to the changes and challenges that now face this "industry" or they will go the way of Atari. It happened before, and it will happen again, unless they wise up. But something tells me that's not going to happen.

edit: I keep forgetting that this site posts my blog from the time I started typing, not when I publish it, I'll try to keep that in the mind for the future.