Turning the Tanker

Now, tentatively, I think I want to retract that sentiment. Taken away from the context of his wider attack on App Store markets and smartphone gaming (and really, "attack" isn't a fair word - Iwata is a gentleman, and as such it wasn't so much an attack as a damning with faint praise), his statements in the financial briefing take on a slightly different tone, one that's rather more in line with the charitable interpretations of his GDC speech.

The core message now seems to be that Nintendo does really recognise the threat of smartphone gaming - and that it understands that it's an external threat which can't be driven away by shouting at developers, much less by shouting at consumers. Rather, if Nintendo wants to retain its present business model, it's got to fight for it, and the only way to do that is to create software that's so obviously, demonstrably better than anything in the smartphone ecosystem that consumers will be willing to pay the higher price.

One can't help but wonder if this week Iwata's rediscovering some of the fire in his belly that drove the creation of the DS and Wii in the first place

In this, I think Iwata does actually "get it". He knows that what Nintendo faces in the smartphone market is not just a threat from a rival game maker, which is what it faced down when Sony (and Sega before them) pushed into the handheld space. Rather, it's an existential threat to the entire dedicated handheld market.

Iwata understands something that many commentators have failed to grasp - that smartphones don't have to take 100 per cent of the handheld market in order to kill dedicated systems. There's a percentage point of the present market below which it just won't make commercial sense to release handheld games on dedicated platforms, no matter how enthusiastic the remaining percentage of users may be. I wouldn't risk a bet on what that percentage point may be, but I'm pretty sure that it's a logarithmic scale - with users switching to smartphones on one axis, and developers abandoning dedicated handheld devices on another.

So Nintendo fights back, and initially it does it in the way it best understands - by manipulating the price points of its hardware, and trying to get killer apps out onto the market in software terms. That's the kind of strategy that has won console wars for years, after all.

Yet this isn't a console war - it's a war of competing business models, and that, I believe, is where Nintendo's present strategy would fall short in the end. A lower price point and a better line-up of software will do wonders for the 3DS, especially now that PlayStation Vita is going to miss Christmas in most of the territories where Christmas actually matters, but it won't be enough to keep the enemy away from the doors forever.

Nintendo needs to embrace change - and that doesn't necessarily mean having to take drastic steps from the outset, or abandoning the hardware market (as some commentators have suggested for decades), but it does mean having to do more than just pay lipservice to the emergence of new markets. Vitally, it also means embracing online services - something which the 3DS has improved upon, but which is still a huge hole in Nintendo's armour. The "normal users don't care about online" argument was totally valid five or ten years ago - today, it's outdated and plainly wrong.

For all that, I think the fact that Iwata is recognising Nintendo's need to react to the emergence of iOS is a positive, and I think that the trouble faced by the 3DS will give him the mandate he needs to make big internal changes at the company in order to face this threat. I'm not sure he quite knows what those changes are just yet - and I'd be a little dubious of anyone who claims to have all of those answers right now - but I'm not willing to write off Nintendo, no matter how humbled they may now look after the events of last week.

Most of all, I'm not prepared to write off Satoru Iwata, because I remember the position that Nintendo was in when he took the helm, and I've seen how he turned the entire company around. He's obviously a CEO who performs astonishingly well when his back is to the wall - and one can't help but wonder if this week he's rediscovering some of the fire in his belly that drove the creation of the DS and Wii in the first place. If so, what happens next will be fascinating to watch.