Dear Mr. Malstrom,
Thank you for the articles you’ve printed about disruption and the blue ocean strategy. They have really been enlightening, and you’ve even been influencing my behavior. I’ve recently started reading The Innovator’s Dilemma and I purchased a Wii just a few days ago. I have to say that some time in the future I’d like to start a business of my own, so the concepts of disruption and blue ocean strategy are particularly interesting to me.
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With regard to gaming I have to say that for over a year now I’ve noticed that this console generation had some characteristics that were different from previous generations, but I just couldn’t understand why that was until I started reading your articles. For example, I thought it was weird that Sony and Microsoft seemed to be fighting over a distant second place while ignoring Nintendo. Microsoft would even issue statements over how proud it was that their sales were beating Sony’s. How can a company be so proud over winning a distant second? Coming from the perspective of an outside observer all of this seems totally nuts.
I put in bold the above because I found it interesting that you bought a Wii AFTER reading this site. Usually, readers are already Nintendo fans and they are reading because they want to learn more about Nintendo or find the discussion interesting or whatever.
Your perspective on the outside view of wondering why on earth is second place Microsoft bragging they are beating third place Sony (or vice versa) is funny to me. This generation must look insane to people on the outside!
Another thing I noticed was that third-party developers seemed to be acting differently this generation. Most of the time one console will get a good lead early in a console generation, and then most of the third-party companies will make games for that console, because it has the biggest install base. This leads to a symbiotic snowball effect between the leading console maker and the third-party companies. The console leader gets a huge library and therefore sells even more consoles. At the same time the third-party companies sell even more games as the install base grows. This is why it’s so important to get an early lead every console generation. However this time most of the big third-party developers seem to be favoring the PS3 and XBox360 over the Wii. None of this made sense to me before, but now that I understand disruption everything going on makes a lot more sense. These third-party developers are so divorced from the expanded market that they don’t even realize they’re committing suicide.
The Old View from the Playstation 1 and 2 Eras was that Third Parties controlled gaming and the success of a console. Since all third parties were supporting the HD Twins early on, it was reasonable for analysts to be pessimistic about “Revolution”. The Wii success was such a shock because the success had nothing to do with the “Game Industry”.
The third parties think that withdrawing support from the Wii will hurt it. It will do the opposite. Wii was getting a reputation for being the shovelware console. While it is good for a console to get as much software as possible, this shovelware wasn’t too helpful. I was even beginning to think shovelware was a third party’s way to hurt the Wii.
The third parties’ reaction of pulling back to what they find safe and predictable is what happens all the time in industry disruptions. Christensen calls this retreating toward the high end. He effectively uses the Steel Industry to showcase this. The ‘high end’, or the upmarket, is where there are higher profits from fewer but wealthier customers. It is the nice sheet metal of steel as opposed to the rebar market at the very bottom. The mini-mills disrupted the Steel Industry not by beating them at the top but by entering through the bottom, through the rebar market. Then, wanting to get more money, the mini-mills made more sophisticated steel until they eventually got up to sheet metal to drive integrated steel mills out of business.
I think the third parties are doing what feels good to them. They also don’t like platforms with strong first parties on them (Sega and Nintendo) and wouldn’t mind them leaving the console market. I am certain that some see the threat that disruption is bringing.
Changing the topic a bit, I remember an a blog you made last month talking about the decision to package Wii Sports with the Wii in North America. I think this may be the most brilliant decision ever made in the business of gaming. Think about this list of games for a moment: Super Mario Bros., Sonic the Hedgehog, Tetris, Super Mario World, Wii Sports. All of these games have an iconic status that few other games have, and all of them came packaged with a successful console.
However I think of the five listed Wii Sports is actually the one best designed to be a console seller. Wii Sports is the only console seller whose main strength is in local multiplayer. Whenever I talk with my friends at church about video games they will usually say they don’t play, but if I ask them about the Wii, they say, “Oh I love the Wii”. When I probe further they say they either love Bowling or Tennis. In their mind Wii Sports is the Wii. Furthermore even though some of them don’t own a Wii and may never own a Wii, knowing that they like it makes me want to own a Wii. I know that I can invite them over, and we can play the Wii together. It’s no different from buying a Monopoly game, because I know my friends like to play Monopoly. Local multiplayer is why the Wii is so infectious.
Tetris for Gameboy had excellent local multiplayer (but you needed another Gameboy for that! Since every Gameboy came with Tetris, it was easy to find another player). Atari 2600 was bundled with Combat which was a fun tank game to play against one another. And, of course, there was the home version of Pong that was multiplayer!
But you are correct that Wii Sports really did a fantastic local multiplayer on the likes we have not seen before. You could bring the Wii out before anyone and immediately they could be in the game playing.
In response to your blog, “Square: Consoles set for extinction”, I’d like to give my $.02 on Square-Enix’s situation. These CEO’s often don’t say exactly what they mean, but if you understand their business situation what they say often gives a clue toward what they are thinking. I think Wada sees his company having two major franchises and one of them has a bright future, while the other one worries him a lot. The Dragon Quest franchise transitioned into a handheld franchise and is selling like crazy. Therefore Wada does see a bright future (for his company) selling new Dragon Quests as well as old RPG remakes on the handheld consoles.
As for the Final Fantasy franchise and home consoles I think Wada is worried. I have no idea how much Final Fantasy XIII cost to make, but I do know that it probably has dozens of hours of cinematics with high production values and that sort of think ain’t cheap. Also the install base of the PS3 and XBox360 is much smaller than the PS2 install base that last generation’s Final Fantasies were made on. So now Wada is trying to figure a way to keep his flagship franchise from dying. A couple of months ago he made some type of press announcement saying that he thought Nintendo would release in a new console sometime in 2010 lol. I think that he might have been trying to get people to choose the PS3 over the Wii, but maybe he was really just hoping Nintendo would hear what he wants and come out with a Wii HD or something. With this latest interview I think he’s hoping digital distribution will yield higher profit margins and actually make HD Final Fantasies profitable. Regardless of what he’s really trying to do I can’t help but think every move Square-Enix has made recently has come because they realize Final Fantasy just won’t generate profits like it used to. So they’re trying to come up new ways to make profit without having to downsize (including buying Eidos for example). Anyway that’s just my $.02 on the whole thing.
Finally I’d like to reiterate that I really enjoy your articles and your blog. Please keep posting as they are greatly appreciated. :)
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Interesting insight on Square Enix there. I agree with your take on it. These top game companies are bleeding red ink like crazy. Wii HD and digital distribution won’t save them.
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