Nintendo's 2DS: The Good, the Bad, and the Ugly

The Nintendo  (NASDAQOTH: NTDOY  ) 2DS system has recently hit store shelves with the potential to help the company's software reach a new group of gamers. The handheld does away with the clam shell design and 3-D display of its immediate predecessor, but it will play both 3DS and DS games. If that sounds a little bit confusing, it is. Still, Nintendo has a lot riding on the success of the 2DS. Does the system have what it takes to help get Nintendo out of a slump?

The good
Nintendo's fiscal year target of 100 billion yen in operating profit is one that it is unlikely to hit. Wii U software sales have been sluggish, and it is reported that the system still sells at a loss for Nintendo. With that in mind, the company will have to rely almost solely on its handhelds to drive numbers. By ditching the clam shell design, removing 3-D functionality, and employing other adjustments to reduce build cost, Nintendo is able to make a profit on each 2DS sold at $129 MSRP.

The device was reportedly designed to reach the age five to seven demographic, one that has been slower than anticipated to adopt 3DS hardware. Research shows that young children are increasingly being introduced to gaming through tablets and smartphones. This young demographic is one that Nintendo used to have a much better hold on, and one that it needs to retain if the company is to stay healthy.

The affordable and sturdily-designed 2DS gives Nintendo a better chance of appealing to parents and broadening its installed base. Even better, the system launched with the latest Pokémon titles. These should sell in massive numbers and drive Nintendo's handheld hardware. Pokémon X and Pokémon Y will likely be Nintendo's biggest sellers this holiday and, if the 2DS catches on, it will drive them to even greater success.

The bad
The 2DS provides evidence of a series of branding and vision problems that have burdened the company. The fact that Nintendo has chosen to jettison stereoscopic 3-D suggests that the gimmick was the wrong one to propel its 3DS handheld, and that the company's apparent need to distinguish itself from competition through quirky hardware features is preventing customers from enjoying its software.

For further proof, take a look at the company's Wii U console and its GamePad controller. The expensive, streaming-enabled device is responsible for much of the Wii U's current $299 MSRP and it has yet to capture consumer interest. If Nintendo insists on pitching its systems with gimmicks, it assumes great risk if they fail to catch on.

The naming of the 2DS system further solidifies the notion of a confused Nintendo. When parents go looking for software for the device, they will not find any game packaging that prominently features the 2DS branding. If they go looking for a 2-D Nintendo DS, rather than a Nintendo 2DS, they might easily wind up with hardware that first released in 2004. Getting rid of stereoscopic 3-D in order to broaden the appeal of the device is likely a good move, but it compounds advertising and messaging headaches that the company is already experiencing with the Wii U.

While the subject of product naming is on the table, it's worth taking a look at the Microsoft (NASDAQ: MSFT  ) Xbox One and what, if any, effect the device's name will have on its success. Somewhat similarly to the 2DS situation, the original Xbox was released in 2001, which could possibly cause confusion. Unlike the 2DS situation, very few retailers still stock anything related to the original Xbox.

Still, the name has some issues. After a disastrous initial reveal, the nickname "Xbone" has become common parlance for the system. Head of Microsoft Studios Phil Spencer recently stated that while the name is not the most flattering, it is unlikely to go away. Is a bad name enough to kill a system? Probably not, but as the Wii U has shown, it can create unwanted obstacles.

The ugly
The 2DS marks a movement to a more toy-like aesthetic. While this may endear the device to the young target demographic, many are not on board with the design. Its appearance is possibly the most widely derided of any mass market gaming platform in the last two decades. Countless publications and analysts have jumped in to term the device "ugly."

Still, perceived sexiness is not enough to sell or sink a handheld, as Sony's  (NYSE: SNE  )  PS Vita demonstrates. The Vita frequently receives plaudits for its design and feature set, but it has failed to catch on outside of a hardcore niche. That said, the handheld may have a future in Japan and as a PlayStation 4 companion device. Sony recently debuted a colorful new line of PS Vitas in Japan to a significant sales bump. The system posted weekly sales of approximately 60,000 units, up considerably from approximately 3,500 in the preceding week. The performance, though notably lower than the 3DS hardware amid the launch of new Pokémon titles, is another sign of life for the device.

Where does Nintendo go from here
Viewed as an indicator of Nintendo's future viability, the 2DS is a difficult product to assess. The handheld should generate attractive margins and help spur software sales for Nintendo. On the other hand, it also forefronts ongoing issues within the company, suggesting that it may lack the savvy needed to succeed in a changing industry. Perhaps the most obvious takeaway from the device is that Nintendo's next handheld will drop stereoscopic 3-D altogether. 

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