Logitech (NASDAQ: LOGI) unveiled its iPhone controller, the PowerShell, earlier this week. By attaching Logitech's device to Apple's (NASDAQ: AAPL) iPhone 5, iPhone 5s, or fifth-generation iPod Touch, consumers can transform their smartphone or mp3 player into a powerful handheld console.
Apple's app store is already a major force in the gaming world, paying millions to game developers every single day. Yet it hasn't cornered the market for handheld gaming totally -- at least not yet. Nintendo's (NASDAQOTH: NTDOY) handheld, the 3DS, continues to sell well. But with Apple's iPhone finally getting what it has long lacked -- buttons -- Nintendo's future looks uncertain.
Apple is already more important than Nintendo
When it comes to handheld gaming, Apple is already far more important than Nintendo. In the U.S., there are about 126 million mobile gamers, according to eMarketer, and though Apple's share of the mobile market has declined worldwide, it's still dominant in the U.S., making it likely that the majority of U.S. mobile gamers are playing on some sort of Apple device. In comparison, Nintendo has sold about 35 million 3DS consoles worldwide.
When it comes to money, Apple is ahead there, too. When it announced the iPad Air, Apple noted that over the past four months, it had paid mobile developers $25 million per day. Assuming that downloads hold up, Apple is on pace to pay developers over $9 billion in the next year -- much of that to game creators. In fact, Distimo estimates, via Forbes, that about 79% of app revenue comes from games; Apple could pay game creators over $7 billion next year.
The exact size of the Nintendo 3DS gaming market is less clear, but it's nowhere near $7 billion -- NPD reported that, in October, traditional video game software in total brought in just under $500 million in the United States.
But mobile games haven't appealed to core gamers
Yet despite the popularity of iOS gaming, traditional gamers have stuck to consoles. The most popular mobile titles (Candy Crush, Angry Birds, etc.) are simplistic games aimed at casual gamers. Although they're highly addicting and very profitable for the companies that developed them, they can't replicate the same experience as, say, Nintendo's Pokemon franchise.
But why is that? Largely, it comes down to input. With only a touchscreen to work with, mobile game developers are hamstrung in their ability to offer compelling titles. But Logitech's new device changes that.
If gamers buy Logitech's controller, they'll almost be transforming their iPhone into Nintendo's handheld -- both devices sport two shoulder buttons, four front-facing buttons, and a D-pad. Logitech's device is only missing Nintendo's directional nub.
With the ongoing decline of the traditional PC, Logitech has had to invest in new markets beyond its traditional keyboards and mice. It's turned to gaming accessories as a major area for growth, and there, I would expect the company to do more. A controller for Apple's iPad Air and iPad Mini seems like a natural next step, and could actually prove more compelling from a gaming standpoint as, according to Business Insider, tablet users spend more than two-thirds of their times gaming.
Nintendo is now dependent on handheld gaming
As a company, Nintendo is now very much dependent on the handheld gaming market. Its year-old Wii U has, so far, been an objective failure, missing Nintendo's expectations for sales. Nintendo sells the Wii U at a loss, which has weighed on earnings, and last quarter, caused Nintendo to report an operating loss of about $200 million. Nintendo's management expects the company to have sold 9 million Wii Us by the end of next March, but that won't happen, given that Nintendo sold less than 4 million as of the end of September, and will have to compete against both the PlayStation 4 and Xbox One this holiday season.
Nintendo's 3DS, however, has done quite well. In fact, it's been the best selling console in the U.S. for six months running. The recently released Pokemon X and Pokemon Y were both top sellers in October and should benefit Nintendo come earnings time.
But Nintendo's reliance on handheld gaming is dangerous, and potentially fatal. With Logitech's new controller, Apple's phones could finally get the sorts of the games that attract core gamers. When that happens, the reasons to own Nintendo's handheld will plummet.
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