How Nintendo Ceded the Online Landscape to PS4 and Xbox One

Over the last two decades, Nintendo (NASDAQOTH: NTDOY  ) has developed a reputation for being either slow or unwilling to adapt to industry trends. The associated philosophy has yielded varying results. The company has at times proven itself capable of rebuking what seems to be the obvious direction and implemented its own strategies to considerable success. One area in which the company remains woefully out of touch with the modern gaming landscape is online play. The company has proven habitually reticent when it comes to pursuing what many developers and publishers view as the future of the industry. Will Nintendo be edged out by Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) if it continues to downplay the importance of online gaming?

Ignoring Microsoft's greatest gaming achievement
When Microsoft  made its first foray into console gaming with its Xbox console in 2001, many doubted that the software giant could find success in a market that had traditionally been dominated by Japanese companies. The Japanese gaming industry was thriving and it seemed unlikely that the Xbox could prosper without strong support from its publishers. Despite lifetime sales that would wind up well behind those of the behemoth Playstation 2 from Sony, the Xbox proved to be a disruptive force.

Microsoft's Xbox mined an intersection between PC and console gaming, including a hard drive with every console (an industry first) and relying on a strong selection of first person shooters to build brand identity. The console also normalized online console gaming, introducing the paid Xbox Live service to considerable success. Realizing that online gaming had arrived on consoles, Sony set about improving its online offerings on the PlayStation 2. While Nintendo's GameCube was technically capable of online play, support for the feature was virtually nonexistent.

Special snowflake syndrome
Skip ahead to the Wii U and Nintendo clearly does not view online play as a priority. It took the company nearly a year to release a game for the system that featured online multiplayer. Curiously, Nintendo decided that a non-retail HD remake of its popular Wii Sports game was the best title to pioneer online multiplayer on its Wii U console. Pointing out that both the PS4 and the Xbox One launched with first-party games featuring online multiplayer seems unnecessary. The Xbox 360 and PlayStation 3 accomplished that middling feat in 2005 and 2006, respectively.

Even though Nintendo's recently released Super Mario 3D World has a strong multiplayer focus, the company has been quick to point out that online play is not in the series' short-term future. Nintendo visionary Shigeru Miyamoto has stated that the company may begin to consider online play for "Mario" in approximately ten years' time. To say that the company may not be able to enjoy such a leisurely timetable would be putting it lightly. Microsoft's Xbox Live platform generated approximately $1.2 billion in 2010 and has posted substantial growth with each subsequent year. In the first half of Nintendo's 2013 fiscal year, the company's online revenue hit a new peak at approximately $146 million.

Searching for justification
There are many reasons why Nintendo has been slow to fully embrace online play. The company has an interest in maintaining a family friendly image and online exchanges are often colored by profanity and sexual content. The company has fallen behind and does not have the infrastructure or technical proficiency to compete with the best online experiences. Further, Nintendo's design philosophies are at odds with much of the online gaming landscape. None of these reasons can justify Nintendo's mishandling of online in light of market realities.

An unprecedented dud
The company has shown itself more willing to invest in pared-down online play on its handhelds than a full-featured experience in its home offerings. This decision has had obvious and ongoing consequences that are contributing to the death of Wii U. Publishing giant Electronic Arts (NASDAQ: EA  ) once touted an "unprecedented partnership" with Nintendo that would see the company help the platform holder modernize its online offerings. How exactly this partnership came to disintegrate remains something of a mystery, but EA's position is clear. The Wii U does not offer a suitable online ecosystem.

The online situation proved so toxic to EA that the company no longer has titles in development for the Wii U. The last major console to lose support from EA early in its lifecycle was Sega's Dreamcast. Ironically enough, that system pioneered online console gaming. Given that EA publishes some of the biggest games in the industry and that the company gave considerable support to the Wii , the publisher's scorning of Wii U represents a sizable loss for Nintendo.

Missing the boat and the obvious
Nintendo's strategy to avoid the tech race with the Wii proved to be a brilliant short-term move. Its continuation of that strategy with the Wii U, a console that was supposed to regain support from hardcore gamers, is baffling. Online play has become normalized. Take a look at gaming's best selling retail software for 2012 and count how many of those titles do not feature online multiplayer. The answer should give an indication of just how badly Nintendo misread the market this time around.

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