Poor Nintendo (NASDAQOTH:NTDOY). With all the noise about the launch of Sony's (NYSE:SNE) Playstation 4 and Microsoft's (NASDAQ:MSFT) Xbox One, many people have forgotten that it was Nintendo that actually launched the first eighth-generation console, the Wii U.
The Wii U, launched last November, only sold 82,277 units globally last week, being outsold by the seventh-generation Playstation 3 and Xbox 360, which respectively sold 255,293 and 193,784 units.
Of course, sales of the Playstation 4, at over a million, towered over all of these consoles, and the release of the Xbox One this weekend could certainly come close.
To date, the Wii U has only sold 1.5 million units, which pales in comparison to the 100 million units the Wii sold before being discontinued -- and it's a strong indication that Nintendo might not have a place among eighth-generation consoles at all.
But I believe that it's still not too late for Nintendo to save itself, if it considers following the footsteps of its former rival Sega (now known as Sega Sammy) -- abandon the hardware market completely to focus solely on software for other consoles, like the PS4 and the Xbox One.
Why Nintendo should follow in Sega's footsteps
Before I get ripped to shreds by diehard Nintendo fans who are inevitably fuming at my blasphemous statement, I think we should take a trip back in time to see how dedicating itself solely to publishing games could represent the rebirth of this famed pioneer of the video game industry.
Nintendo, as I explained in a previous article, is the victim of its own business model. The company is less like Microsoft and Sony, and more like Sega -- its primary rival throughout the 1980s and 1990s.
For Microsoft and Sony, video game consoles and game publishing only represent a small part of their businesses. Microsoft and Sony also enjoy widespread support from third-party publishers, but Nintendo -- having driven off many of its former allies with its insistence on using proprietary storage media and hardware, has to produce many of its top games by itself.
Learning from the mistakes of the past
Throughout the 1980s, Nintendo dominated the third-generation 8-bit console market with the Nintendo Entertainment System (NES), which sold 62 million units in its lifetime. Sega's competing unit, the Master System, only sold 13 million.
Realizing that it was destined to lose the third-generation console race, Sega launched a pre-emptive strike against Nintendo by releasing its fourth-generation console, the 16-bit Sega Genesis (also known as the Mega Drive) in 1988. The Genesis was a huge hit for Sega, as its graphical and audio capabilities exceeded anything that the NES could offer.
The Genesis controlled the fourth-generation market for two years, until Nintendo finally responded with the release of the Super NES in 1990, which offered superior graphics and audio to Sega's aging system. By the end of their production cycles, Sega had sold approximately 40 million Genesis units, while Nintendo had sold 49 million.
The disastrous fifth generation
However, Nintendo and Sega followed that success up with a series of disastrous, industry-altering decisions.
Nintendo originally signed a partnership with Sony in 1988 to create a next-generation CD-ROM add-on to the SNES. In 1991, Sony unveiled their creation, called the "Play Station," which could play both SNES cartridges and planned CD-ROM titles from Nintendo. Unfortunately, Nintendo got into a major licensing dispute with Sony, and dropped Sony in favor of Philips to continue the development of the CD add-on. The partnership with Philips ultimately went nowhere, and Nintendo abandoned the project.
However, Sony retained the technology that it had developed for Nintendo, and released the original PlayStation in 1994 -- the fifth-generation console that would eventually sell 102 million units worldwide and forever alter the video game console market.
Sega, noticing Nintendo's eagerness to create a CD-based system, released the Sega CD and 32X in 1991 and 1994, respectively, two clumsy hardware add-ons that were poorly received and suffered from poor third-party support.
By the time Sega's actual fifth-generation console, the Saturn, arrived in 1994, gamers were burned out from the absurd add-ons. The Saturn went head-to-head against Sony's PlayStation and lost horribly, only selling 9.5 million units by the time it was discontinued in 2000. Nintendo's N64, which arrived in 1996, fared better, selling 33 million units, but was an ultimate disappointment due to its use of the low-capacity cartridge format and glaring lack of third-party developer support.
In other words, all those ill-advised, costly hardware failures caused Nintendo and Sega to choke at the height of their powers, handing over the market to Sony on a silver platter.
The Wii U is Nintendo's Dreamcast
Sega's final attempt at penetrating the hardware market, the sixth-generation Sega Dreamcast, was a sad swan song for the company. Sega tried to launch a pre-emptive strike on Sony by launching it in 1998, two years ahead of the PlayStation 2. The console delivered everything Sega gamers had been dreaming of, but it was too little, too late.
However, many gamers that Nintendo and Sega had lost over the years were already waiting for the PlayStation 2, which was expected to offer superior technology and better third-party games. As a result of the Dreamcast's paltry worldwide sales of 10.6 million units, Sega abandoned the hardware market altogether and rebranded itself as a software developer.
Does Sega's plight look familiar? It should, since that's exactly where Nintendo stands now, faced with two unappealing choices -- should it continue pushing sales of the failing Wii U, or cut its losses and follow in Sega's footsteps and become a software developer instead?
We still love you, Nintendo
In my opinion, the choice is clear -- there's still a lot of nostalgic love for Mario, Zelda, Donkey Kong, and Samus among video gamers, even those who no longer own a Nintendo console. If Nintendo swallows its pride and releases cross-platform releases of the next Mario or Zelda game, it can breathe new life to the Nintendo brand.
Moreover, Nintendo's final stronghold -- its handheld consoles -- is being threatened by the rise of mobile games on smartphones, tablets, and hybrid devices. Nintendo could solve that problem by releasing its core franchises on iOS and Android instead. After all, who wouldn't want to play Super Mario Galaxy on an iPad?
No longer will Nintendo have to do all the heavy lifting in both hardware and software -- it can finally break off its hardware shackles and let us remember why we loved Nintendo in the first place -- by creating high-quality games for the masses that appeal to the inner kid in all of us.
Do you agree or disagree with my view of Nintendo's future? Let me know in the comments section below!
Fool contributor Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.