Nintendo's soul-searching on F2P

When Nintendo launched Super Mario Run on iOS late last year, the company was embarking on a huge experiment in more ways than one. Introducing its most enduring mascot character to mobile was an experiment in its own right, of course; but perhaps the bigger and more challenging experiment was the business model the company chose for the game. "Free-to-start" was the firm's effort at creating an alternative to the pervasive free-to-play model by essentially repurposing the old PC shareware model - allowing people to download and play a sizeable chunk of the game for free, and then asking for a one-time payment ($10, in this case) to access the rest of the content.

This felt, at the time, like a bold attempt by Nintendo to use the power of its intellectual property to push for serious change in the mobile market. With a tiny handful of notable exceptions (Minecraft and, well, that's about it really), premium games have made no inroads in the mobile space as the F2P model has extended its dominance. There's a lot of variation within F2P, of course; different developers implement the model differently depending on the type of game they're making and the audience they're targeting, and some developers absolutely handle it better than others. Nintendo, however, seemed to want to create an alternative model for games that don't suit F2P (and audiences who don't like it), and to be willing to undertake the very heavy lifting required to change consumer attitudes and behaviour on that front.

With Super Mario Run, this went pretty much as expected; the game did very well for a premium mobile game but did not trouble the top reaches of the revenue charts for very long. This makes sense; the game's biggest fans paid their $10 in the first few days after launch and haven't paid anything since, so ongoing revenues are simply trickling in from latecomers at this stage. This is a revenue curve much more like that of a console game than an F2P mobile game, and the fact that it even hovers in or around the top 100 top grossing games on iOS is actually a testament to Mario's enduring popularity.

"Did Nintendo actually believe that the Mario IP and the Nintendo brand - as powerful and valuable as they are - would be sufficient to reform a mature and highly settled market like mobile gaming overnight?"

Along with the rapid drop out of the top-grossing charts (again, this is exactly what any halfway competent modelling of the outcomes of this business model would have anticipated), there was also a vocal and angry backlash from mobile game consumers against what they perceived as the high price of the title. That doesn't make a lot of sense to console game consumers, for whom $10 is a very cheap price, but asking for that much money that early in the game elicited strong emotions from consumers who primarily play mobile F2P titles (many of which, given a little patience, can be played forever without paying a penny). Once again, this was a predictable response; the assumption was that Nintendo knew this would happen, but was willing to essentially use the strength of the Mario brand to "get out and push", weathering the opprobrium in the name of slowly changing consumer behaviours and market norms.

As a result, it's a little surprising to see Nintendo president Tatsumi Kimishima describing revenues from Super Mario Run as being below expectations. Certainly, Nintendo is new to mobile, but it's working with a very well established partner in DeNA, and I'm sure it did an enormous amount of research into how the field operates before committing its star character to a mobile game. If what Kimishima means is that this experiment is turning out to be harder than expected - that F2P is more deeply ingrained in the market than Nintendo realised, and that it will take a lot more effort to normalise a different model in consumers' minds - then that's fair enough, though it raises questions over how well the company understood the market it was entering. What is more worrying is the possibility that Nintendo actually didn't realise what a task it was undertaking by launching a non-F2P game in a market where F2P is, well, the only game in town. Did Nintendo actually believe that the Mario IP and the Nintendo brand - as powerful and valuable as they are - would be sufficient to reform a mature and highly settled market like mobile gaming overnight?

Which of these interpretations is correct isn't just academic pondering; it's an important question for the company's mobile strategy. Since the launch of Super Mario Run, which recently came to Android devices, the firm has launched one further mobile title - Fire Emblem Heroes - which is based on a far less popular and famous IP than Mario, but has significantly out-performed its stablemate in revenue terms. Fire Emblem Heroes is an F2P game, albeit one with a very light-touch approach to monetisation, and is a far less dramatic departure from ordinary mobile game design than Mario Run was, featuring mechanisms such as "gacha" draws to get new characters and a variety of items and currencies for levelling up your squads. Of all of Nintendo's mobile efforts thus far, it's by far the most successful in commercial terms, and has generally been received warmly by critics as well.

"Fire Emblem Heroes creates a Catch-22, because it actually proves that Nintendo is perfectly capable of creating a successful, well-regarded F2P game that enhances rather than devalues one of its core IPs"

The interesting thing is that the same Nikkei Asian Review article which quoted Kimishima describing Super Mario Run's sales as disappointing also cited an unnamed "senior company official" as saying that Fire Emblem Heroes' F2P model was "an outlier", with the firm having a preference for the Super Mario Run model. Nintendo hasn't confirmed what business model it'll use for future mobile titles such as Animal Crossing. The question is, does that preference for the more console-like Super Mario Run model - which is so much closer to the comfort zone of the company's designers, no doubt - extend to a genuine willingness to keep pushing that model, driving back against consumer resistance and sacrificing short-term profitability in pursuit of creating change in the market? Does the company now understand that that's the task it has undertaken, even if it didn't initially quite grasp the enormity of what it was effectively trying to do when Super Mario Run launched?

Nintendo is perhaps the only company in the world capable of taking on the task of changing mobile gaming - not of "defeating" F2P (which does not need defeating, and as Fire Emblem Heroes and countless other games show, can be an excellent model for the right game and audience), but of introducing a sustainable alternative business model that eschews micro-transactions entirely. It's not just that the company owns many of the most powerful and recognisable brands in gaming; it's also that Nintendo is in a unique position of needing to protect those brands and IPs far more than it actually needs revenue from mobile titles. Unlike most rival companies, it can quite happily justify lower revenues from mobile games in the name of ensuring that its brands do not suffer damage or devaluation from being tied to an inappropriate business model. However, Fire Emblem Heroes creates a Catch-22, because it actually proves that Nintendo is perfectly capable of creating a successful, well-regarded F2P game that enhances rather than devalues one of its core IPs. Given that success (and with the huge revenues created by Pokemon Go no doubt also looming large in its collective consciousness), does Nintendo really have the will to keep on trying to push this boulder uphill?

Though the lack of a name attached to the quote about preferring the Super Mario Run model does not inspire confidence, it at least suggests that Nintendo still has some enthusiasm for the task of carving out a new business model in mobile. Kimishima's comments, however, tell us that regardless of how clearly the company understood the magnitude of that task at the outset, they have certainly come to recognise it now. Super Mario Run and Fire Emblem Heroes suggest two very different paths forward for Nintendo's mobile ambitions; which direction it jumps on the next few mobile titles it publishes will be a determining factor in how the future of the company as a whole takes shape.