Nintendo (NASDAQOTH: NTDOY ) just announced two new versions of its 3DS handheld video game consoles, simply called the "new" 3DS and "new" 3DS XL (known as LL in Japan).
This isn't a new strategy for Nintendo. The 3DS family is already split into three lines: the 2DS ($130), the 3DS ($170), and the 3DS XL ($200). The key differences between the systems are that the 2DS lacks a stereoscopic screen and can't be folded, while the XL has larger screens than the other models. But what makes the "new" 3DS and XL novel is that it is the first time Nintendo has significantly modified the internal hardware and controller.
The new models will have a second right analog stick and two new Z1 and Z2 shoulder buttons. The devices will also sport a faster CPU, built-in support for near field communication (NFC) devices and Amiibo figurines, and have clearer stereoscopic 3D. Both models will also feature removable cover plates, which will cost about 1000 yen ($9.60) each in Japan. Prices and availability for the cover plates have been not announced for other markets yet.
The new versions will launch in Japan in October for roughly the same price as the current 3DS and XL/LL models. Eurogamer and Gamespot have reported that the new models should launch in the U.S. and Europe in 2015.
A foolish effort to save the 3DS
Nintendo is clearly trying to keep gamers interested in the 3DS, which has sold 44.1 million units worldwide. Although those numbers are impressive, sales are peaking -- for the last quarter, Nintendo reported that 3DS unit sales fell 43% year over year to 820,000 units.
This means the 3DS won't likely match sales of the Nintendo DS, which was the No. 2 best-selling console in history, with sales of 154 million units. Combine that with the disruptive threat of the mobile gaming market -- which research firm Gartner expects to nearly double in revenue from $13.2 billion in 2013 to $22 billion in 2015 -- and it's clear Nintendo had to do something to keep its portable games market alive.
Unfortunately, the new 3DS and XL won't save the 3DS family. Instead, I believe the new handhelds will simply confuse new customers while alienating old fans.
A product of old-school modular thinking
To understand why Nintendo incrementally upgraded the 3DS, we need to understand Nintendo's tradition of upgrading existing hardware with modular (bolt-on) improvements.
During Nintendo's golden age of 8-bit NES and 16-bit SNES games, publishers sometimes added special chips into the cartridges to add graphics and audio functions that were not natively built into the console. A well-known example is Nintendo's Star Fox, which used the "Super FX" chip to help the Super NES render simple polygons. This strategy continued with the Nintendo 64's Expansion Pak, which doubled the amount of RAM so the console could play games such as Perfect Dark, Donkey Kong 64, and The Legend of Zelda: Majora's Mask.
This strategy had two problems. Either the publisher shouldered additional costs by adding new chips to its cartridges, or the consumer had to upgrade the console simply to play a new game.
That's where we are with the "new" 3DS, which Nintendo is essentially upgrading like a Nintendo 64 with an Expansion Pak. The problem is that existing 3DS owners can't simply upgrade their systems with a modular attachment this time -- they have to buy a brand-new 3DS to keep pace.
Alienating core 3DS gamers with exclusive games
If Nintendo had simply upgraded the stereoscopic 3D and processor for the new version, it could have attracted new customers while keeping existing users happy, since the entire 3DS family would continue playing the same games.
But Nintendo instead suddenly added two new buttons and a second stick, and promised exclusive games for the "new" 3DS, such as a port of the Wii game Xenoblade Chronicles. Capcom's Monster Hunter 4 and Square Enix's Final Fantasy Explorers will also use the second stick, although both games will still work with the original 3DS controls.
This strategy splits the 3DS user base, with three older systems and two newer ones. Additional exclusive games would basically turn the "new" 3DS into a fully new console, which can confuse new customers and alienate those who purchased one of the previous three versions. This also make it hard for 3DS publishers, which must now decide whether to make a game for the older 3DS user base, or to use the "new" 3DS' hardware to develop a more impressive game.
Nintendo's approach also deviates from the industry standard of slimming existing handhelds with cheaper hardware while keeping the user base in one piece. Nintendo split the original Game Boy Advance into two lines -- the SP, which had a smaller form factor and brighter backlight, and the tiny Micro. Neither model received exclusive games that the original model could not play.
A Foolish final word
Nintendo's abrupt introduction of the "new" 3DS shows that it has forgotten why the handheld console was such a hit in the first place -- a solid selection of games, a stereoscopic screen, and a low price. That's why the 3DS handily outsold Sony's (NYSE: SNE ) pricier and more powerful PS Vita, which has only sold 8.8 million units since launching in December 2011.
Unfortunately, Nintendo is getting ready to irreparably fragment its 3DS market in a way that it has never done before -- and it could prematurely kill off its biggest user base in the process.
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