Nintendo might be forced to experiment with its business model after it wasn’t able to replicate the success of its Wii in recent years. Whereas the Wii sold 70 million units, its successor Wii U reached only a little more than 10% of this result.
Historically, Nintendo has bet on a closed ecosystem providing all hardware and software components from a single source. Within this ecosystem, games and to some extent peripherals have been drivers of profitability with the OS and console serving as required infrastructure.
Traditional Strategy: Closed Ecosystem
Now, Nintendo is looking at a twofold strategy that replaces its proprietary OS with Google’s Android OS and uses both proprietary consoles and third party Android devices such as phones or tablets as hardware infrastructure.
Hybrid developer strategy: Own console
The second part of this twofold strategy opens Nintendo’s ecosystem to Android devices. While this gives up the value of Nintendo’s console, it has the potential to address a completely new group of consumers in the Android ecosystem who wouldn’t invest in Nintendo infrastructure to play their games. The value extracted from games can be expected to be lower than in the traditional strategy’s closed ecosystem. However, due to the growth in consumers the net value of the hybrid strategy’s components combined would exceed the value captured by the traditional strategy alone. Further, Nintendo gains flexibility to change the pricing of its games from one-time to subscription or even freemium. This further changes the way value is captured while creating potentials to address new consumer groups. Ultimately, Nintendo has options to offer a proprietary peripherals for Android devices such as Samsung’s Android controller. Nintendo has already gained access to development resources for mobile by partnering with DeNa, a mobile gaming development studio.
Ultimately, Nintendo can rely on its strengths of having “iconic characters and games”. The key question is if the effects of monetizing these strengths through the larger Android platform will outweigh the potential cannibalizing of Nintendo’s uniqueness of its ecosystem. Therefore, Nintendo’s possible switch to the Android platform can be considered a risky move.