Business, Tech

Nintendo and the New Era of Entertainment

Mario. Luigi. Donkey Kong. Pikachu. Princess Peach.

If you you grew up in the last 25 years, you’ve most assuredly heard of – and likely played at least one game featuring – these iconic video game characters. Personally, I can definitely attest to playing my fair share of video games in my childhood, which is why it was interesting to read about how the company behind these characters has been struggling of late. According to Bloomberg, Nintendo reported “disappointing sales of its Wii U console and [forecasted] a surprise loss”, which has lowered their market value by an estimated $1.2 billion.

Your first thought might be, “What? Do people not play video games anymore?”. But you would not be further from the truth, since Nintendo operates in a $93 billion industry. Indeed, gaming is alive and well as more consumers of all ages are progressively embracing digital entertainment options. So with such a large market, why is Nintendo struggling so much, then? In my opinion, there are two key factors, both of which are part of larger trends in the entertainment and tech industries.

Firstly, with the vast amount of entertainment choices available today across all manner of platforms, the overall consumer group has become perceptibly fragmented. For starters, traditional video game consoles today have competition from computers, tablets, and smartphones (not to mention games integrated with social networks such as Facebook). Yet, although gamer demographics have broadened and the amount of platforms has grown significantly, it’s becoming clear that gamers probably fall into only two groups these days: “hardcore” and “casual”.

Hardcore gamers can be best described as people with either high-performance computers specially built for the purpose of gaming or those who purchase the more expensive (and powerful) consoles from Nintendo’s competitors, Sony and Microsoft. Meanwhile, the advent of Facebook games and smartphone/tablet applications has opened up a world of cheaper, less intensive gaming options for more casual game players. As the market has increasingly split into these two directions, Nintendo’s Wii U system has found itself uncomfortably caught in the middle: too expensive and inconvenient for casual gamers and not powerful or “serious” enough for the hardcore player.

This uncomfortable position that Nintendo has found itself in should serve as a lesson to companies today, seeing as even a renowned brand like Nintendo isn’t safe from the dramatic shifts in the entertainment market if it doesn’t ensure its business strategy is in line with customer desires. As such, analyst Michael Pachter was quoted in the Bloomberg article as saying that “Nintendo should exit hardware altogether” and instead focus on delivering high-quality content with their great cast of characters to other platforms such as mobile.

This brings us to the second factor in Nintendo’s decline. They are proving that it’s difficult to play both sides in the tech industry these days, which like the gaming market, can easily be divided into two groups: hardware and software. With the tech industry riding a boom, companies are increasingly becoming successful focusing on developing highly specialized solutions for a certain market (communications, entertainment, etc.), rather than trying to do everything. With the amount of competition in the tech environment, it simply isn’t realistic for most companies to try and dominate several markets.

Furthermore, there is a broader array of software tools and solutions than ever, but the amount of successful hardware companies has become more concentrated, making it difficult to succeed in both arenas. Take a company like BlackBerry Limited, which once made its mark on the wireless industry with their revolutionary BlackBerry product. Their software remains popular, but they have struggled in recent years as sales of their phones and tablets has declined significantly. Like Nintendo, BlackBerry’s troubles can be pointed to the high cost of producing hardware that ultimately goes unsold. Like Nintendo, BlackBerry has great software applications that might be more successfully and profitably delivered at a more controlled scale and cost.

Thus, whether it’s the gaming market or the tech industry, the situation that Nintendo finds themselves in is indicative of their standing in two industries which are rapidly growing, yet becoming more and more divided. Understanding your position, your target market, and your end-user is more necessary than ever as these industries continue to become more complex and saturated. You only need to look at Nintendo and BlackBerry as examples of companies which didn’t adapt to the fact that while the game might still be the same, the rules are always changing.

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Business, Tech

Gambling, Movies, and Wall Street: The Age of the Tech Startup

Alex Wilhelm posted an interesting article on TechCrunch today, in which he concluded that there appears to be “a negative correlation between celebrity interaction and a startup’s future health”. He cites Path, Wiredoo, Airtime, and Moonfrye as examples of ventures that have fizzled with involvement from celebrities such as Soleil Moon Frye, Ashton Kutcher, Sean Parker, and MC Hammer.

You read that right: MC Hammer, best known for his 1990 hit “U Can’t Touch This”, was behind a startup. More specifically, a tech startup, Wiredoo, which was a search engine with aspirations of competing against Google and Bing. If there were any doubts in your mind that we are living in the age of the startup (or perhaps more accurately, the age of the tech startup), then the image of Hammer agonizing over “deep search” and “relational topics” should erase those permanently.

Maybe MC Hammer was inspired after watching The Social Network or reading the book which the film was based upon, Ben Mezrich’s The Accidental Billionaires. Either way, the movie (which received 8 Academy Award nominations) seemed to signal the arrival of Hollywood glitz into the previously unexplored world of nerds, hoodies, and ramen-fueled marathon coding sessions. But is Hollywood, with its focus on style over substance, the right dance partner for tech companies? As Wilhelm muses in his article, “Are companies with celebrity backing less focused on their fundamentals, or perhaps more focused on how they appear?”

Yet, it’s not only Hollywood that has been enchanted by the wizards of Silicon Valley. Wall Street has been equally compliant in building the hype of the “tech startup”. The prime example in today’s headlines is Snapchat, headed by 23-year-old CEO Evan Spiegel. In the wake of Snapchat allegedly rejecting Facebook’s $3 billion all-cash(!) acquisition offer, news emerged that others have valued the messaging app at $4 billion. This number is shocking when you consider that Instagram was purchased by Facebook last year for $1 billion, or only 25% (or possibly less) of Snapchat’s eventual acquisition price.

It looks like Wall Street isn’t actually located in New York, but rather Las Vegas, because only in the tech industry does a company spurn $3 billion in cash for a product/service with no existing revenue! Of course, you can’t really blame Snapchat for turning the offer down, especially if they think they can get $4 billion (or more) by holding out until 2014. Rather, it might be investors who are the ones confusing investing for gambling, because never before has “potential” traded for higher than “reality” in any other era in modern business history.

Traditionally, companies have tried to answer two key questions: “How can we do or make something better/different than our competitors?” and “How do we make money on it?”. In the age of the tech startup, one query takes precedence over either of these: “IPO or acquisition?” For better or worse, your goal if you run a tech company today is to cash out when your chips are worth the most, or at least when they appear to be worth the most. Thus, while Wilhelm might be right when he says that the slick Hollywood packaging doesn’t necessarily help, it certainly can’t hurt.

So this brings us to today, where our story is about Ashton Kutcher, gambling, and 23-year-old future billionaires. No, this isn’t the next big movie in theaters; this is the marriage of Wall Street and Vegas, with Hollywood presiding. Welcome to the age of the tech startup.

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