3DS and Wii U Sales are Down - Is Nintendo's Lack of Mobile Strategy to Blame?

These days, the gloom and doom in the air enshrouding Nintendo (NASDAQOTH: NTDOY  ) after it slashed its 2014 sales forecasts is so thick that you can't even see the company anymore.

Although a 70% reduction in Wii U sales and 20% decrease in 3DS sales certainly looks bad, Nintendo isn't about to go belly up anytime soon -- the Japanese gaming giant has still sold 5.5 million Wii U's, 101 million Wiis (which have not been discontinued in the U.S.), 42.6 million 3DS units, and countless first-party titles -- all of which helped it generate sales of ¥196 billion ($1.92 billion) in the first half of fiscal 2013.

Is this Nintendo's future? (Source: Wiinintendo.net)

Yet there are two big problems. Nintendo's Wii U, which had a year's head start in the eighth generation console race, could soon be overtaken by Sony's (NYSE: SNE  ) PS4 (4.6 million units) and Microsoft's (NASDAQ: MSFT  ) Xbox One (3.2 million units) -- both of which launched two months ago. Meanwhile, Nintendo's bottom line is crumbling -- the company is headed toward a total operating loss of ¥35 billion ($339 million) for fiscal 2013.

Faced with these sobering facts, the media started speculating wildly about Nintendo's next move. Would the company be forced to follow in its former rival Sega's footsteps and abandon hardware altogether? Would it become a software-only developer instead, bringing Mario, Link, and Samus to rival consoles?

Or would it finally release cheaper mobile games for Google (NASDAQ: GOOGL  ) Android and Apple (NASDAQ: AAPL  ) iOS mobile devices?

Mobile strategy? What mobile strategy?

As it turns out, the answer might not be what anyone expected.

The Japanese business publication Nikkei originally claimed that Nintendo planned to launch free mini-games for mobile devices, which will serve as demos of full-priced console titles. The promotional games would reportedly allow users to purchase the full games from within the mobile game, and possibly include additional videos and information about the titles.

Nintendo, however, stated on Jan. 28 that it had "no plans to offer mini-games on smartphone devices," and that the Nikkei article contained information that simply referred to "Nintendo's willingness to make use of smart devices" to promote its games and consoles.

Real or not, the strategy originally reported in Nikkei is definitely an interesting one that deserves a second look.

Major video game publishers like Electronic Arts (NASDAQ: EA  ) often release mobile versions of their established PC or console titles on mobile platforms, but the console version is intended to drive sales of the mobile one, and not the other way around.

EA's Mass Effect Infiltrator. (Source: Gamesplosion.com)

EA's business model is simple -- it uses a higher budget title (Mass Effect, The Sims, Mirror's Edge, Need for Speed) as an anchor for the mobile version. Although the mobile versions are graphically degraded and shorter, they also cost substantially less ($5 vs $50) than the original titles.

This business model has served EA well. Last quarter, EA's mobile and handheld division reported sales of $125 million -- a 26% jump over the prior year quarter. Growth like that is one of the primary reasons that critics claim Nintendo should follow suit and release cheaper versions of its first-party console titles on mobile devices.

Nintendo needs to go all in or avoid the mobile market altogether

If Nintendo is unwilling to adopt EA's business model of selling mobile games, and it is also unwilling to sell mini-game demos of its own, then it really only has one other option -- promotional apps.

Whereas EA hopes customers will make $5 purchases based on their love for its $50 games, Nintendo would need to get a customer to buy a $50 game based on their love of a free promotional app.

That strategy faces two major problems.

First, there's the matter of hardware availability. EA assumes that most of its PC and console gamers also own mobile devices, so it can safely anticipate a large market for its mobile titles.

Nintendo, on the other hand, could make clever, must-download promotional apps for its games, but it still needs the mobile user to actually own a Wii U or 3DS to seal the deal. Otherwise, Nintendo needs a non-Nintendo gamer to purchase one of its consoles ($170 for the 3DS to $300 for the Wii U) before buying the advertised game.

Second, EA's business model is based on the fact that most mobile users aren't willing to pay much more than $1 to $7 for a paid app. Nintendo caters to a different crowd -- gamers who are willing to fork over $40 for a longer, higher-quality handheld title like The Legend of Zelda: A Link Between Two Worlds.

The Legend of Zelda: A Link Between Two Worlds. (Source: Gameinformer.com)

There's really only one choice

After all of this speculation, there's really only one choice for Nintendo when it comes to mobile devices -- follow EA's lead and release mobile versions of its full games or avoid it altogether.

Strange middle-ground ideas like promotional apps, videos, or possibly mini-games won't do very much to boost sales.

In a way, Nintendo is right to refuse to release mobile games for Android or iOS -- they cheapen its core franchises and the appeal of its full-length 3DS games.

However, I don't see the harm in releasing a handful of bite-sized puzzle or mini-game titles featuring its iconic characters. These titles don't diminish the importance of its core franchises. They are cheap to develop, could generate some additional revenue through app or in-game purchases, and serve as free advertising -- similar to the way movie studios release mobile games to promote their films.

Could a Candy Crush-like puzzle game help boost Nintendo's mobile profile? (Source: Applenapps.com)

In conclusion, Nintendo definitely needs a mobile strategy -- worldwide smartphone users are forecast to hit 1.75 billion later this year, up from 1 billion only two years ago. That soaring number could be the key to getting its sales back on track.

What do you think, dear readers? Will Nintendo clarify its mobile strategy soon, or is it doomed to miss out on a golden opportunity to revive its lagging sales? Let me know in the comments section below!

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Read/Post Comments (12) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 01, 2014, at 2:41 PM, Njancek wrote:

    I'm sorry, the title of this article needs to be fixed.

    There is *no* way that the lack of smartphone games can contribute to lack of sales on their two consoles. It doesn't work that way, at all. A person isn't going to go to Gamestop, look at the 3DS library and go "Huh, well I can't buy Mario Crush on my iPhone, so no reason to buy any 3DS games here!" And if there are people that are like that, they're asinine and don't need to be going to a game store in the first place.

  • Report this Comment On February 01, 2014, at 3:49 PM, ectogamit wrote:

    The problem with the wiiU is it was never marketed very well. It was supposed to be backward compatible with the wii. which means it needs motion controllers. Which it might do but all I know about it is it has a big lCD controller.

  • Report this Comment On February 01, 2014, at 4:06 PM, voyban wrote:

    *The Legend of Zelda: A Link Between Worlds.

    Not "A Link Between TWO Worlds."

  • Report this Comment On February 01, 2014, at 6:06 PM, JaredM80 wrote:

    maybe everyone who wanted a 3DS already bought one

  • Report this Comment On February 01, 2014, at 7:12 PM, doomrider7 wrote:

    To answer the above topic question, no. There is no serious mobile gaming market. Angry Birds, Candy Crush, Fruit Ninja, and everything else on mobile devices MAY be videogames, but no, they are ABSOLUTELY NOWHERE EVEN REMOTELY CLOSE to anything out on handheld consoles. To imply that there's even OVERLAP between the two is just pathetically blind and reeks of sales shilling and pandering.

  • Report this Comment On February 01, 2014, at 7:16 PM, doomrider7 wrote:

    Also to add, EA's app market is universally REVILED by the gaming community as a cancerous tumor that needs to be put down due to the gratuitous money grubbing practices of constant micro-transactions, pay to play/pay to win, and constant release of incomplete or nigh unplayable garbage. That Motley Fool speaks of them as if they some kind of benefactor just shows how out of touch they are on top of how MASSIVELY ANTI-CONSUMER they are.

  • Report this Comment On February 01, 2014, at 7:42 PM, unknownhope88 wrote:

    You couldnt be further from the answer. Lack of mobile apps is no where close to why they arent doing well. There marketing is fine, its the lack of games. The wii U has been out for a little over a year and there are only about 100 games out for it. Out of those 100 games half of them were made for the 360 and ps3 making it useless to buy a $300 console to pay $60 for a game compared to straight $60. Even though the idea of motion controls and an tablet gamepad might be cool, it makes it hard for a developer to incorporate it all compared to just a regular controller. That is why there is a shortage a games and sales. Mobile apps will give them a boost in profit but not enough, they need to start going back to gaming instead of chasing the casual market train.

  • Report this Comment On February 02, 2014, at 12:08 AM, SphinxArc wrote:

    "The Legend of Zelda: A Link Between Two Worlds"

    No offense man, but how could you screw up the damn title?

  • Report this Comment On February 02, 2014, at 12:34 AM, TMFSunLion wrote:

    "A Link Between Two Worlds" was the earlier title which was widely circulated prior to the recent release:

    http://www.heyuguysgaming.com/17150/the-legend-of-zelda-a-li...

    http://www.presstartoplay.com/?gamepress_reviews=the-legend-...

    http://www.ign.com/articles/2013/06/11/e3-2013-zelda-link-to...

    So it still gets tossed around a lot. But yes, you guys are correct, the current name is "A Link Between Worlds."

    Thanks for reading.

  • Report this Comment On February 02, 2014, at 3:00 AM, Galzero wrote:

    Again? Every single day you write negative articles about Nintendo. Why are obsessed with mobile devises and Nintendo? Be professional for once.

  • Report this Comment On February 02, 2014, at 12:09 PM, TMFSunLion wrote:

    Please read my previous article:

    3 Reasons the PS Vita Failed:

    http://www.fool.com/investing/general/2014/01/27/3-reasons-s...

    and before you think I'm bearish on Nintendo, read this:

    http://www.fool.com/investing/general/2014/01/14/is-the-3ds-...

    Thanks.

  • Report this Comment On February 02, 2014, at 11:36 PM, demonroach wrote:

    Stupid article. Yes, 100million Wiis, but Wii game production has been discontinued, so it is now defunct. Nintendo only has 3ds and Wii U now, not ds and wii, as income generating components.

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