PC World has what is essentially a ‘hit piece‘ on the Wii. Instead of looking at the reasons why the Wii is successful, CIO look for reasons for conspiracy, for ‘marketing’ (say it with a sneer), or that the company is completely incompetent. This isn’t uncommon. The more successful any product or company becomes, the more others pile on. Expect to see this for a long time for the Wii.
But Pachter made a major slip-up. He revealed that Nintendo told him he was wrong about the Wii being shifted to other territories because of the falling dollar.
Pachter says that Nintendo has denied this claim. “They’ve called me to tell me I’m wrong,” he says. (Nintendo media relations did not return a call seeking comment for this article.)
Pachter was the analyst who publicly said that the fall of the dollar caused Nintendo to divert Wii shipments to other territories. LA Times, New York Times, other major newspapers, TV news, and the enthusiast sites picked up and went on Pachter’s claim. Even though Nintendo calls Pachter and says he is wrong, HE KEEPS REPEATING IT. So what we end up with is misinformation, spread by Pachter, which everyone repeats not just on the news but in discussions on the Internet. “I heard that the falling dollar has causef Nintendo to divert shipments…”
I, myself, among others who were watching the Wii closely, were saying Pachter was full of it from the beginning. Anyone can see that Nintendo is in a tricky situation with supply and America. They are in unprecedented territory of a New Market where they do not know where the demand ends. The President of the company, himself, Mr. Iwata, tells investors they are unsure of how large the new market is. Naturally, in this supply situation, there is no magic button to increase supply. No one knows when the demand will be met so the company has to increase production, not all at once, but in cautious steps.
So let us repeat this quote so this stupid conspiratorial “NIntendo moving shipments around based on dollar fluctuations..” can die:
Pachter says that Nintendo has denied this claim. “They’ve called me to tell me I’m wrong,” he says.
Pachter says that Nintendo has denied this claim. “They’ve called me to tell me I’m wrong,” he says.
Pachter says that Nintendo has denied this claim. “They’ve called me to tell me I’m wrong,” he says.
However, Pachter being wrong does not enter the constellation of his brain. The article goes on saying,
But the numbers don’t lie. According to Pachter, the Wii has been in supply-demand balance in Japan since roughly six months after the Wii came out; it’s been in supply-demand balance in Europe for the last year. “And it’s been sold out here,” he says. “It’s clear from the numbers that they’re starving the U.S. And they’re not doing it to screw with us, they’re just doing it because as long as they’re going to be sold out, they’d just rather be sold out here.”
The numbers show that most of the Wii shipments have been going to America. It has been like that ever since the console launched. The reason why America is not yet in suppy-demand balance is not because the supply is LOWER in America, but that the DEMAND is higher in America. Pachter needs to ask why the demand is higher in America than in other territories. But this question will not result in a mathematical answer he can blow as financial smoke in a report to investors. Asking about demand results in explaining the behavior of people. And these analysts do not do that in their reports. They’d rather analyze the ‘supply’ and the ‘shipments’ rather than the customers who are actually controlling the market.
The DS was most popular in Japan, then Europe, and was least popular in America. In America, the DS still sells to mostly younger kids. Iwata was telling Reggie that he needed to sell more Brain-Age. So why is this? Part of the answer has to do with how people live their lives. America is a nation of freeways and highways. People drive from one place to another. So handhelds are very useful for kids in entertaining them while they are shuttled from place to place. But adults play most of their video games in the home in America. Japan is more of a nation where people take public transportation to work, and Europe is to a lesser extent. Playing a handheld to and from the daily commute is not likely in America but quite possible in Japan. Handhelds, in general, have done extremely well in Japan.
As for home consoles, America is different than the other territories. Nintendo home consoles have always sold the most in America, no exceptions. NES, SNES, N64, Gamecube, all sold the majority of their systems in America. So America has the largest active customer base for the Nintendo home systems.
Unlike other territories, America also has the largest tail of former video game players. Aside from the popularity of the NES, SNES, etc, there was the Atari 2600 phenomenon and the Golden Age of Arcades that didn’t exactly appear in other territories. The cradle of home consoles was in America starting with Pong. All this resulted in the largest number of former gamers in any of the major territories. So next time you hear about a retirement home playing Wii, keep your ears open for hearing about Pong because many of them were former Pong or Atari players.
Then, of course, there is the undefinable group of new players. Here, America has an advantage to other territories as well because of the American practice of the ‘house party’ which Iwata has commented on.
“In retrospect, the U.S. culture of the house party played a major role in spreading the value of Wii to a bigger circle faster than we ever predicted. All of my American friends keep telling me ‘Man, the Wii is the ultimate party machine!’ [Laughs] But none of that was intentional on our part. All we did was ask ourselves how to pack the most smiles and surprises into the product as we developed it. Fortunately, we hit a sweet spot. As a result, interest in the Wii has spread across the U.S. surprisingly quickly.”
With the largest active Nintendo gamer base being in America, with the longest home console history meaning the largest former gamer group being in America, as well as the ‘House Party’ practice, the Wii hitting America was like a spark on a continent of black powder. Now we see the DS market success reversed with the Wii being biggest in America, then in Europe, and last in Japan. You would think a video game analyst would know that Iwata said this and would be keeping careful track of the behaviors of the territories. The DS success foreshadowed much of this.
The dollar is now increasing. The oil prices are falling. And why are the oil prices falling so fast and so rapidly? It is because people’s behavior changed. When people drive less, when airplane companies bench hundreds of aircraft due to the soaring price of jet fuel, less money is made because less fuel is used. There was a price point where people and companies were willing to change their behavior when the oil price surpassed it. It made such a big impact on the U.S. Presidential Race that laws are currently being overturned to drill for more oil (it is rare when the public demands laws be overturned). And so the market corrects itself: oil prices plunge. The dollar goes up.
Now that the Euro will likely fall in value, will Pachter apply his ‘logic’ to say that Nintendo is taking Wii consoles away from Europe and putting it in other territories? I bet he won’t because it will sound so ridiculous even for a Pachter.
There is a gut feeling among many people that some analysts just pull things from their ‘ass’. I will show below that Pachter is demonstrating this behavior:
The hard-core Xbox started at $400 and the technically-amazing PS3 at $600, “and that didn’t work very well,” Pachter says. “I think that Nintendo, figuring that their technology was kind of last generation, were just not just thinking about going higher than $300. They certainly could have charged $400 until they exhausted that demand, then cut the prices to $300 and exhausted that demand, and they always would have been able to supply them.”
“So,” Pachter adds, “the pricing was wrong.”
This shows why Pachter is an ‘analyst’ and not working for a company like Nintendo. Using two minutes of ‘research’ on Google, I emerge with these quotes:
Iwata Asks: What is the Wii Part 2
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Takeda:
Of course, the issue of performance was not secondary. Anyone can realize “low performance with low power.” Others tend to aim for “high performance with high power.” With Wii however, Nintendo alone has pursued “high performance with low power consumption.” So, while Wii embraces cutting-edge technology and high performance, the direction it is aiming in is completely different from that of previous systems. When we look at the automobile industry, not every car is following the same evolutionary course. While some are trying to make faster cars, others are gathering public attention around the world with their hybrid engines. If automobiles can be used as a metaphor, our industry has always been trying to compete over horsepower, even though not all cars are made to compete in F1 races. -
Shiota:
Just as hybrid cars have created a new emphasis on “environmental performance,” I believe that Wii has also discovered new values. Having said that, however, Nintendo has never shied away from technological competition. On the contrary, we have integrated a number of highly technological elements into Wii.
The Wii does use cutting edge technology. It is just using it in a different value than the regular performance roadmap. What the two Nintendo hardware developers above are saying is practicaly verbatim from the Blue Ocean Strategy. Instead of competing for the same values as the competitors, Nintendo chose a different value, avoiding the red ocean for a blue ocean. Cutting-edge technology are integral to the Blue Ocean Strategy and disruption. It is just technology that people don’t recognize as’cutting-edge’ because it goes a different direction. Miyamoto, in one interview, used an example of a domestic appliances that are more efficient in using its power such as a refrigerator in Japan.
The Blue Ocean Strategy is not tolerant of price cutting. If one is able to build up the value of the product, there should be no need to price cut. Aside from the singular price cut for the DS before it took off, DS, Wii, and the Nintendo made games have not had any price cut. It is a big element of their console strategy which Pachter still seems blissfully unaware even after the smashing success of both products. You would think a video game analyst would analyze the leading handheld and console and ask: “What strategies are they using that made them so successful?” and they would run into Blue Ocean Strategy and disruption (for Nintendo could not shut up talking about its strategy early on). It is like I am in the Twilight Zone. Despite the Wii and DS success, no one wants to study it seriously. Who cares what an analyst *thinks* what is going on? Do some research and find out what REALLY happened.
Also, Nintendo didn’t have to price the Wii higher because it was profitable unlike Xbox 360 and PlayStation 3 when they launched. And last, Nintendo was unsure how fast the Wii would be successful. Disruptive products are tricky to predict in terms of speed which Iwata said to the Nintendo investors.
The second problem: Nintendo was unable to anticipate the Wii’s demand, which has features like its Wii Remote wireless controller that have made it popular with kids and adults alike. Again, Pachter contends, Nintendo executives used historical console sales, such as Sony’s PS2 sales, as their guide: Nintendo said it was going to sell 14 million consoles in the first year, he points out, then the company increased that to 16 million and ultimately wound up selling 19 million.
“It never occurred to them that the demand for the Wii would outstrip demand for the PS2,” Pachter says. “It didn’t even sound possible. It didn’t sound possible to anybody.”
Using two minute research from google searches, I emerged with this story from Reuters about Iwata predicting Wii would be more successful than the PlayStation 2.
OK, that was July 2007. But what about sooner?
“The keyword for the DS was ‘innovative product,’ but it will be ‘paradigm shift in [game] play’ with the Revolution,” Iwata said in his interview with Kyoto’s popular local newspaper.
This was said in January 2005.
Nintendo always had huge ambitions for the Wii. I don’t see how Pachter could have missed Iwata and all saying that they believed the games industry was in crisis and was going to shrink. While they admitted they were surprised with how fast the Wii became successful, they always planned for the Wii to be bigger than the PS2. After all, Wii has the largest console launch ever. From the beginning, Nintendo had a laser like focus to put more software on the Wii than its competitors or predecessors.
I think the reason why Pachter and other analysts are so confused about the Wii is because they hold a completely different premise than Nintendo did. Pachter and others are saying the video game industry is, and always has, been booming. Nintendo, however, said things had to change or the game industry would keep shrinking. Nintendo sees Levitt’s “Marketing Myopia”, I don’t think Pachter has even considered it.
The reason why I’m being hard on Pachter here is that his public comments about Nintendo shipments and currency fluctation flooded the Internet and the mainstream press with misinformation even with Nintendo calling him and telling him he was wrong. This makes my job harder as people like me not only still have to explain Nintendo’s actions, we must clean up the sloppy mess of misinformation. It is bad enough when people create misinformation, it is worse when they do so knowingly.
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