The End of Handheld?

There have been so many false, unfounded predictions of a huge Nintendo failure over the past few years - mostly involving massively biased fanboy commentators confidently anticipating the death of the Wii - that when the failure actually came, the event was so tempered with a sense of deja vu that it was hard to tell whether it actually felt surprising or not.

Yet there's absolutely no question that what has happened to the 3DS is, indeed, a huge failure for Nintendo. I'm being careful to say "for Nintendo" here, because it's important to retain some perspective; the 3DS has shipped close to 4.5 million units worldwide, which would be considered pretty good by many consumer device companies.

The 3DS is faring a hell of a sight better than, for example, tablet devices based on Android, or phones using Windows Phone 7 - and as others have been swift to point out, the figures aren't actually that far away from those achieved by the original Nintendo DS after its launch.

But that doesn't change the fact that, for Nintendo, this is a failure. Android on tablets and Windows Phone 7 are pitched against hugely dominant incumbents in their respective markets, where 3DS is the successor to a hugely dominant incumbent. Similar logic applies to comparisons with the original DS; that was Nintendo's first truly successful console in almost a decade, and when it arrived few people understood the appeal of the dual screen, touch-sensitive layout. 3DS, as its successor, should have enjoyed much more immediate success.

Nintendo, to its credit, isn't beating around the bush - it accepts the failure and has indicated a willingness to act aggressively to turn the situation around. Moves in that regard range from the symbolic (Satoru Iwata's 50% pay cut) to the practical (the massive price drop for the system and the likelihood of a marketing relaunch), and the company is also keen to be seen as learning from past mistakes - the failure to cut the price of the GameCube after disappointing early sales, in particular, was mentioned at the Tokyo press conference on Friday.

The reasons for the 3DS' disappointing performance don't really need a lot of explanation - anyone following the industry knows what the problems have been with the console. The price was much too high, comparable with a PlayStation 3 and far above the cost of the existing DS or an iPod Touch. Nintendo seems to have hoped that the 3DS would appeal to a core audience initially, with the DS staying on shelves for the mainstream audience. The low sales figures suggest that the company's core audience has also stayed away.

That might be down to the second major factor - the lack of software, or at least, the perceived lack of software. 3DS owners and publishers working on the console might raise their eyebrows when the platform is accused of lacking games - in my own view, at least, it's got one of the strongest early line-ups I've ever seen on a console - but the meme is more important than the reality. Again, Nintendo's abandonment by core fans doesn't help - and while titles like Starfox and Ocarina of Time are excellent, the console could have done with original games rather than remakes at this point in its lifespan.

Another area where perception is more important than reality is marketing, and this has been a complete and miserable failure for Nintendo on almost every count. The public simply isn't aware of the strengths of the 3DS, thanks to a marketing campaign which has tried to strongly emphasise the ties to the DS brand while also talking up the 3D capabilities of the system. As a consequence, many consumers are still under the impression that the 3DS is simply a DS with a 3D screen - these people aren't stupid or uninformed, they believe this because that's exactly what Nintendo has been telling them.

It doesn't help, of course, that 3D is presently in the doghouse as far as most consumers are concerned, thanks to movie studios completely wrecking any enthusiasm for the burgeoning technology with a slew of badly adapted, low-quality 3D releases - the situation is so dire that most ordinary cinema-goers I know will go to a more inconvenient showtime just to see the 2D version of a new film. Thus, the 3DS ends up with its only heavily promoted USP being a technology that consumers don't want, and which many actively resent.

In theory, all of those things could be fixed. You can cut the price - Nintendo already has, making the 3DS into probably the first console it has ever made on which it's taking a loss on hardware sales. You can bolster your software line-up, and Nintendo's already on the way to that. Even if you can't change the ill-conceived name, you can at least formulate a marketing campaign that promotes the console's other positives and downplays the 3D factor a little.

What you can't do, however, is make smartphones and tablets go away. I think the factors outlined above are probably the core reason for the failure of the 3DS to achieve the strong launch Nintendo had hoped for, but in the medium to long term, it's smartphones and tablets that will have the largest impact. Multifunction devices may not play games quite as well as dedicated devices (yet), but they play them well enough for most consumers - and have led many consumers to see handheld games as something that should be free or very inexpensive, casting huge doubt on the market for £30 software.

Given those factors, two major questions arise from Nintendo's humiliating about-face on the 3DS' price. Firstly, has the company done enough to save the 3DS?

The answer, I think, is probably "yes - for now". At a much lower price point and with the software catalogue growing rapidly, with a better marketing campaign behind it and hopefully with the leeway for some good software bundles as we approach key sales periods this winter, I believe that the 3DS should have pretty decent sales in the vital fourth calendar quarter.

For most consumers, hardware purchases follow a simple equation - you balance up the number of games in which the consumer is interested on one side, and weigh that against the price on the other side. The fall in price makes it much easier for consumers to justify the purchase as the software library grows - and while for some consumers the rapid price cut will diminish confidence in the device, it should encourage others to come off the fence and buy into the console.

In the longer term, however, I believe that it's simply impossible for the 3DS to replicate the success of the DS. The audience that Nintendo won for itself with the DS hasn't stopped gaming, but they've discovered - as many other gamers have - that there's a lot of high quality entertainment to be had for much lower prices. Iwata may rail against the dangers - as he perceives them - of low-cost software on iOS style platforms, but the reality is that billions of dollars are being spent on iOS Apps, many of them games, and that clever companies are finding ways to fund even the development of pretty large-scale, high quality projects using new business models provided by smartphone platforms.

Which leads us to the second question - what does the difficulty faced by the 3DS mean for the wider console market, particularly the handheld market? Where does this leave PlayStation Vita?

Some commentators have opined that Vita was actually a seriously negative factor for the 3DS, and I think there's some truth to that - the fact that Sony was going to launch a technologically superior handheld, without the divisive, unpopular 3D tech, at the same price point as the 3DS, definitely dampened sales. However, it's easy to put too much weight on that idea - the reality is that most consumers who chose not to buy a 3DS did so not because of Vita on the horizon, but rather because of being perfectly happy with something that already exists, like an iPod Touch or a DSi.

If anything, I think Sony will be seriously worried by the early failures of the 3DS. For a start, it puts them in the uncomfortable position of launching a much more expensive product than their rival - and as has been proven time and time again in recent years, for most consumers, the argument that it's more powerful so it's worth the money just doesn't wash, especially with a handheld platform. It also creates a market expectation of failure for dedicated handheld devices, so Vita's launch will probably be dampened by consumers holding off a purchase in case it, too, ends up being heavily discounted a few months later.

More importantly, though, the blow Nintendo has taken with the 3DS is an illustration of the real strength and influence of iOS devices in the gaming space. That traditional handhelds would suffer from the rise of iOS, not just due to the incredible sales of Apple's devices but also due to the resulting sea-changes in business models and consumer expectations, has been long theorised. Now we have proof, and it's solid enough proof to have wiped a fifth off Nintendo's formerly soaring stock value.

Sony, at least, understands the outline of this problem, even if I'm not convinced that it's grasped the full scale of it just yet. The PlayStation Suite framework for Android is designed to give the company a leg-up in the mobile gaming space, and it's shown vastly more commitment to delivering low-cost, high-quality content on PSN than Nintendo has on services like the 3DS eShop or its predecessors, which are much more focused on squeezing value out of retro titles than on providing a marketplace for original content.

Yet the reality still remains the same - PlayStation Vita is going to launch at the same price point which sank the 3DS, and even if some of the factors around it look more positive (not least that the early adopter market still likes Sony, but regards Nintendo as having blotted its copybook badly in the past generation), it's still going to be competing with iOS devices sporting a huge game catalogue at vastly lower prices. That's a tough nut to crack, and I'm not sure Sony has really worked out how to crack it.

The long-term diagnosis is tricky. It's easy to look at home consoles and core gaming on PC and confidently predict that it's here for the long-haul; even if the pace of the graphics arms race slows down (as it must), the simple reality of tens of millions of core consumers will ensure that the market remains fairly healthy regardless of how popular casual and social gaming gets.

Handhelds are a trickier proposition. The reality is that they're not quite so hardcore a market - some core titles break through, such as the extraordinary Monster Hunter (which, I recently discovered, actually commonly features in personal ads on dating sites in Japan, such is its ubiquity), but where few Xbox or PS3 owners are going to be satisfied with a complete move to an iPad or a bunch of Facebook games and free-to-play MMOs, a pretty large proportion of DS and PSP owners would probably be perfectly happy playing on iPhones or Droids.

That transition is no longer hypothetical - the money being pumped through the iOS revenue system, contrasted with the failure of the 3DS to ring the tills at retail, is proof positive that it's already happening on a large scale. The only question is how big this factor is going to be. 3DS and PS Vita will, quite simply, never scale the heights of the previous generation of handhelds - but if Nintendo and Sony are fast, and clever, and more than a bit lucky, there's a good chance that they can carve out a viable, if smaller, market.

One thing is certain - dedicated handheld gaming devices are now in rapid decline, and barring an extraordinary technological advance, they're not going to come back. Birthed with the Game & Watch, this sector is going to end with the 3DS and Vita. All that remains to be seen is whether it ends with a whimper, or a bang.