Smart device pivot could cost Nintendo at home

In the wake of Nintendo's full-year financials earlier this week, we may not know very much more about its upcoming console, the NX, but one thing was hinted at very strongly; after years of trying to pretend that the smart devices revolution wasn't happening, the company is now pivoting to a stance that puts such devices at the heart of everything it does. New CEO Tatsumi Kimishima, who took on the role last September, isn't turning Nintendo into a smartphone game company, as some analysts have - shortsightedly - demanded, but their calls haven't fallen on deaf ears either; the company's vision of the future now sees mobile games not as being its only business, but as being a pillar of the company which supports, and is supported by, all its other businesses.

What does that look like in practice? The company's announcements this week offered some key hints. Miitomo, its first mobile venture, looks increasingly like a trojan horse designed to drive signups to My Nintendo, a platform which will connect not only the company's mobile titles, but its home consoles - including the upcoming NX. It'll be joined this autumn by a pair of "real" mobile games, Animal Crossing and Fire Emblem, and as well as linking to My Nintendo, the company mentioned Animal Crossing also linking to a console game. Expanding on those comments in a later briefing, the firm suggested that its mobile game strategy involves linking them to console titles where possible and appropriate; treating mobile games both as standalone products, and as extensions of its console software.

"By the time NX arrives in March 2017, Nintendo will already have the building blocks in place for an ecosystem where mobile and console are co-dependent"

What this means is that by the time NX arrives in March 2017, Nintendo will already have the building blocks in place for an ecosystem where mobile and console are co-dependent. That's the company's vision, it seems; using mobile games to capture new audiences and push them towards console hardware and software, while simultaneously pushing its console players towards mobile titles that extend their games with social and persistent features. NX, whatever form it takes (the company maintains that it's a "brand-new concept", though its ability to play the same Zelda title as the Wii U limits the extent to which it can be a radical departure), will be designed from the ground up as a console which, rather than ignoring the smart devices that already populate your living room, works alongside them from the outset.

That's a sensible move for some market segments; there's no question that one of the failings of the Wii U is that its big selling point, the "second screen" concept, wasn't especially exciting to audiences who are already used to having multiple smart devices around. It wasn't the critical failure of the Wii U - that crown goes either to the initially weak software support or the frankly abysmal marketing of the console - but the lack of excitement around the concept didn't help. Creating a device that sits comfortably within consumers' existing device ecosystems makes far more sense, and should allow Nintendo to innovate in ways that people care about rather than needlessly reinventing wheels.

For other market segments, though, a smart device centric approach is actually a huge risk - a risk which, I believe, analysts and commentators have hugely underestimated over the years. Nintendo's reluctance to engage with smartphones up until now hasn't been driven by some kind of luddite urge, or a not-invented-here stubbornness - at least not entirely. Rather, Nintendo knows its audience better than most of its critics, and it knows that a move to bring smartphones into the core of its business will not be welcomed by all, will not be embraced by all, and will entail a surrender of some important control that has helped the company to define its identity over the years.

"It's easy to forget that Nintendo's most consistent and loyal consumers aren't westerners in their twenties and thirties with deep wallets and deeper wells of childhood nostalgia; they're Japanese children and families"

To put this in blunt terms; if, as seems apparent, the NX is designed to fit within a smartphone-centric strategy, then the NX is going to have serious trouble gaining traction in the kids' market - at least in Japan. Reading about Nintendo online or watching the noise made by its vocal fans, it's easy to forget that Nintendo's most consistent and loyal consumers aren't westerners in their twenties and thirties with deep wallets and deeper wells of childhood nostalgia; they're Japanese children and families. Though this market is in slow decline (demographics alone have seen to that), it's Japanese kids whose enduring affection for Nintendo's properties, generation after generation, have kept the company's consoles afloat in its home market - especially its handheld consoles, which owe much of their evergreen success to schoolyard hits Pokemon and, more recently, Yokai Watch. Much of Nintendo's value in this market comes not just from being loved by kids, but from being trusted by parents; the firm's Japanese marketing, both for 3DS and for Wii U, is a masterclass in the tricky balancing act of simultaneously making products look appealing to children, and safe to parents.

Thus, if there's one social factor that's truly played in Nintendo's favour in recent years, it's the resistance of Japanese parents to giving their children smartphones. Smart devices are increasingly common among even fairly young children in other markets, but in Japan, it's very rare for children to carry one - many schools actually ban them entirely. Special phones for children are a pretty big market; they often carry a GPS device that can be remotely tracked by a parent, and have an extremely limited set of functionality, with no capacity to install apps. Teenagers often have a smartphone, but children of primary school age carry a "dumb", child-focused phone - and of course, lacking a phone that can play games, they also carry a Nintendo handheld console. Without detracting for one second from the quality of games like Pokemon or Yokai Watch, it's this aspect of Japanese child-raising society, more than anything else, that has allowed those franchises to thrive in this market while kids elsewhere got hooked on smartphone games.

"Much of Kimishima's career background is in the USA, not Japan; it's also worth noting that while much of Nintendo's decision-making in the past has been based on the Japanese market, the lion's share of its revenues come from North America"

Nintendo's pivot towards making smartphones not just into an independent, free-standing "pillar" of the company, but a deeply integrated part of its strategy for NX and future software, looks even more dramatic in that context. In a sense, it's already made its intentions clear with Miitomo - a social platform which, although cute and cuddly in its appearance, already represents a dramatic relinquishing of control over users' online experiences from a company which has always wished to keep a tight lid on such things. For years, Nintendo has harshly restricted and controlled online functionality in its games and services, fearful of the tarnishing of its brand among parents and families that would result from children encountering inappropriate material online; Miitomo, without making much fuss about it, has quietly overturned that policy in favour of a much more open, and arguably less child-friendly, environment.

The thing is, I doubt anyone in the USA or Europe - where children using smart devices is already a pretty ordinary fact of life - will raise an eyebrow at that; but in Japan and other territories where Nintendo has largely been regarded as an alternative to letting children roam free on iOS or Android, this is a genuinely dramatic step that will not be met with universal acclaim from the firm's customers. It's worth noting, perhaps, that much of Kimishima's career background is in the USA, not Japan; it's also worth noting that while much of Nintendo's decision-making in the past has been based on the Japanese market, the lion's share of its revenues come from North America. If Nintendo wants to remain relevant in its biggest market, the pivot to smart devices is vital; but the potential costs of that pivot on the company's home turf make it clear just what a risk Kimishima is taking.