3 Reasons the Nintendo Wii Failed

Nintendo (NTDOY -1.25%) recently announced that it had discontinued production of the original Wii, which started a revolution in motion-controlled video games. More than 100 million Wii units were sold during its lifetime, penetrating a previously untapped market of casual mainstream gamers.

Yet despite the Wii's success, it was only a temporary shot in the arm for Nintendo, and sales of the Wii peaked by 2008.

Source: Company website.

Sony's (SONY -0.33%) Playstation 3 and Microsoft's (MSFT -2.45%) Xbox 360 quickly caught up and buried the Wii. By 2013, the Wii had become a footnote in video game history.

Source: Vgchartz.com

Since the end of the Wii's heyday, Nintendo's revenue and stock price have fallen by more than 60%.

Source: Ycharts.

What happened?

A single phrase sums up Nintendo's problem: incredible innovation crippled by unbelievable stubbornness. 

Throughout its history, Nintendo has steadfastly refused to comply with industry standards, missing out on several key technological shifts, despite creating some incredible first-party games and revolutionary gameplay innovations.

Let's take a look at three mistakes that shrunk the video gaming giant down to size.

Mistake #1: Storage media

During Nintendo's golden age in the late 1980s and early 1990s, the cartridge was considered the industry standard. However, when Sony's Playstation crashed the party in 1994, it went with the CD-ROM format, since much more data could be stored on a single CD. Nintendo believed that selling console games on CDs could encourage piracy, and that the loading times would disrupt the gaming experience.

Therefore, Nintendo stuck with cartridges when the N64 was released in 1996. Developers were frustrated by Nintendo's decision, since they had to purchase expensive proprietary cartridges to develop and test the games on, instead of using cheaper writable CDs. Full-motion video and orchestral soundtracks also couldn't fit on Nintendo's cartridges.

As a result, leading developers such as Square (now Square Enix), Konami, and Capcom, who propped up Nintendo during the 8- and 16-bit eras, abandoned Nintendo.

With its seventh-generation device, the Gamecube, Nintendo finally went with optical discs. However, rather than go with the standard DVD format that Sony and Microsoft were using, Nintendo went with a smaller format similar to a miniDVD. Not only did that cut the maximum capacity of a game from 4.7 gigabytes down to 1.5 gigabytes, but it also meant that regular DVD movies and audio CDs could not be played in the console, as they could be on the Playstation 2 and the Xbox.

With the Wii, Nintendo finally went with a larger capacity disc. However, the Wii's disc only had the capacity of a regular and double-sided DVD (4.7 and 8.5 GB), nearly matching the Xbox 360's maximum capacity but trailing the Playstation 3's 25 GB Blu-Ray discs.

This constant preference of proprietary media led to other, more severe problems for Nintendo.

Mistake #2: The lack of third-party publishers

Since the first major exodus of developers that occurred during the N64 era, Nintendo has become increasingly dependent on its first party titles such as Mario and Zelda.

Source: Nintendoeverything.com

Since the GameCube and Wii were released, some prodigal developers have trickled back. However, not a single third-party title was able to crack the top five best-selling titles for the Wii during its lifetime.

Source: Company website, as of March 2013

In fact, the top-selling third-party game (that wasn't associated with the Mario franchise) was Ubisoft's Just Dance 2, which sold only 5 million copies.

There are two major problems with Nintendo's dependence on its first-party franchises, although many of its own titles are high-quality, critically acclaimed games.

First, there is a lack of variety -- franchises like Mario Kart, Mario Party, Super Smash Bros., and New Super Mario Bros are arguably just new coats of paint on the same old games. Second, Nintendo has to do all the heavy lifting by itself. By comparison, Sony and Microsoft share those responsibilities and risks with a growing stable of game publishers.

Mistake #3: The lack of horsepower

Another reason that many developers shied away from creating games for the Wii is its lack of horsepower.

Source: Neoseeker.com

When Nintendo first released the Wii, acclaimed game developer Shigeru Miyamoto -- the man who created Mario -- famously stated: "Too many powerful consoles can't coexist. It's like having only ferocious dinosaurs. They might fight and hasten their own extinction."

Miyamoto, along with the rest of Nintendo, believed that the Wii didn't need to have comparable specs to the Xbox 360 and the Playstation 3. Nintendo's reasoning was simple -- it believed that it could produce a cheaper, lower-powered console for the masses, and that "adequate" graphics would be satisfactory. In addition, it wanted to create a much smaller console, which could be more conveniently placed in smaller Japanese homes, that aimed to capture a mainstream audience with its simple motion-based controls.

That strategy was admirable -- after all, games don't require top-notch graphics and audio to be fun -- but to many developers, who had already been burned by Nintendo's frustrating proprietary designs, this was just another reason not to develop games for the platform.

Across the industry, games were being simultaneously released across multiple platforms -- the PC, the Playstation 3, and the Xbox 360 -- which all had similar hardware specifications. Developers realized that it would be much more profitable to port a single game across those three platforms, rather than rework an entire game for a lower-powered console with a completely different control scheme.

As a result, Wii owners missed out on some of the top-selling titles of the last few years, such as Grand Theft Auto IV, Skyrim, and Fallout 3, and received watered-down, graphically inferior versions of other hit franchises, such as Call of Duty.

To make matters worse, Sony and Microsoft both released motion-control peripherals of their own, the Move and the Kinect, cancelling out the sole advantage that the Wii once boasted.

Nintendo's future is as cloudy as ever

Nintendo's post-Wii future doesn't look very bright. The company's eighth-generation console, the Wii U, suffers from all of the same problems as its predecessor -- lower horsepower, proprietary controls, and paltry third-party developer support.

Nintendo recently reported that it sold 300,000 Wii U units last quarter -- nearly double the 160,000 in the previous quarter -- bringing its total units sold to 3.9 million. That sales boost was mostly attributed to a steep price reduction ($349 to $299).

However, Nintendo is still very far away from its previously stated goal of selling 9 million units by March 2014. To make matters worse, the Playstation 4 and the Xbox One will arrive next month, threatening to leave the Wii U in the dust.

For now, Nintendo still holds the lead in handheld gaming, with the 3DS holding an 85.5% market share compared to Sony's PS Vita's 14.5% share, but that may soon be its only market left. And even that last stronghold is being threatened by a rise in smartphone and tablet games.

Nintendo, which was once considered the "Apple of video games," could soon become the "BlackBerry of video games" -- if it stubbornly continues to repeat the mistakes of its past.