Apple Won't Kill Nintendo

I'm always a fan of food for thought, even if the taste test doesn't tickle my taste buds.

But Forbes' Brian Caulfield did exactly that with this week's "Why Apple Could Kill Nintendo DS" article.

His theory is that the iPod touch and the iPhone could threaten the handheld gaming dominance of the DS. It's a ludicrous notion, though I'll give him props for pointing out how Apple's (Nasdaq: AAPL  ) gadgets combine two of Nintendo's (OTC BB: NTDOY.PK) most distinctive video gaming features -- a motion-based controller like the Wii console and a touch screen like the portable DS.

Unfortunately for Apple, the similarities end there.

Nintendo's DS offers a clever dual-screen format, with a protective clamshell design, but that's not a deal-breaker for Apple. Nintendo got by on a single screen for ages. Sony (NYSE: SNE  ) is also holding up well with its uni-screen PSP.

The bigger obstacle for Apple as a force in portable gaming is the lack of buttons. You can't get away with a portable gaming device that lacks directional controls. Apple's touch screen just won't cut it. If you think typing on the iPhone's touch-screen keyboard is a chore, imagine trying to get the kind of responsiveness required for a video game out of the same screen.

The iPhone and iPod touch will do just fine for motion-based games like Super Monkey Ball or arcade classics like Marble Madness and Glover. But they will fail everywhere else.

You don't want to pick a fight with Super Mario
Slaying the DS will never be easy, because if you pick a fight with Super Mario, he's going to bring his friends Donkey Kong, Pikachu, Link, and Metroid, too. Since Nintendo happens to own many of its most popular character games, it is protective enough to avoid porting them over to rival platforms.

Microsoft (Nasdaq: MSFT  ) has Halo. Apple has nothing more than the halo effect. It will be at the mercy of third-party developers, who will have to wonder if this is a market worth fighting for.

If anything, it is Microsoft's Xbox gaming experience that makes it a more viable threat to Nintendo than Apple. Microsoft is also desperate enough -- having sold just 2 million Zune players since the Zune’s inception nearly two years ago -- to push the issue of repositioning its media player as a next-generation handheld gaming console. It may have many of the same physical limitations as Apple in design, but at least Microsoft knows it has little to lose in getting its head into the game, since there are so few fans to alienate.

First Quarter 2008

Market Share

Apple iPod

71%

SanDisk (Nasdaq: SNDK  )

11%

Zune

4%

Creative

2%

Source: NPD Group

More reasons to call a truce
Young teens, who make up a good chunk of the handheld gaming audience, are unlikely to be carrying around high-end iPhones. They have iPods, but they are likely to own the more rugged -- and cheaper -- iPod nanos, classics, and shuffles instead of the iPod touch.

The iPod touch or the cell phone contract-shackled iPhone are too costly to justify as gaming gadgetry for kids, even if the convergence of portable appliances makes a catchall unit appealing, and even if recent Nintendo DS titles like Nintendogs and Brain Age have opened up the demographics to an older, diverse audience.  

This doesn't mean that Apple won't try. It certainly would raise the stakes in terms of specs, given its superior storage capacity to the cartridge-based DS. I just think that Apple has bigger fish to fry, and it knows it.

Apple is likely to swing the door open wide for software makers during next week's Worldwide Developers Conference. That is where Steve Jobs will deliver the keynote address come Monday, ripe with everyone speculating on the specs of the new iPhone.

Don't expect Apple to put on much of a game face. I am sure that the future will have some pretty neat diversions programmed for iPhone and iPod touch owners. However, when you see Activision (Nasdaq: ATVI  ) put out a mobile version of its Guitar Hero juggernaut, and sidestep the iPhone (leaving it with a clunky Tap Tap Revolution rip-off or third-party mods), what does that tell you?

Apple is going to revolutionize the wireless communications industry the way it remade the digital music category. Just don't hold your breath if you expect it ever to be a threat to Nintendo's portable gaming dominance.

More Foolishness:

Microsoft is an Inside Value recommendation. Apple, Nintendo, and Activision are Stock Advisor selections. You don't need to work your way alphabetically to the Zune to share great stock picks. Trial subscriptions are available to see which newsletter is right for you.

Longtime Fool contributor Rick Munarriz is a proud owner of several Apple products, but moves to other devices when it's time to play. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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