An offhand comment by Bill Gates in a German newsmagazine has fueled speculation that Microsoft (NASDAQ:MSFT) wants to add Nintendo (Pink Sheets: NTDOY) to its stable. Gates was quoted as saying, "If [former Nintendo President] Hiroshi Yamauchi calls, he will be directly transferred to me." Yamauchi owns a large stake in the company, and essentially Gates has informed the world he'll be first in line with an offer should Nintendo decide to sell.
The software giant is obviously serious about gaming, and there's no doubt that Microsoft would gain tremendously by purchasing Nintendo, which has video game franchises that include some of the best-known characters in gaming history, such as Super Mario Brothers, Zelda, and Donkey Kong. Nintendo competes directly against Microsoft for the No. 2 spot in video gaming, behind Sony (NYSE:SNE), which has the franchise PlayStation console, the world's top-selling video game machine. A combined Microsoft/Nintendo would pose a formidable challenge to Sony's dominance.
Microsoft has made other strategic moves in its gaming business recently, including position cuts at its sports game studio, in an attempt to solidify relations with Electronic Arts (NASDAQ:ERTS), which dominates the sports games market. The two companies just announced collaboration on an online global soccer tournament.
Microsoft, along with Sony, believes in convergence, where all multimedia devices are controlled from one central unit. Sony has already made a play at this market with the PSX (available now in Japan and next year in the U.S.), and Microsoft will have a kit for the Xbox this year to connect the console to a Windows PC. Online gaming is the crucial first step toward convergence, and Nintendo may have put up serious roadblocks to both Microsoft and Sony's plans.
A recently updated patent gives Nintendo exclusive rights to some key online gaming technologies, including voice communications, online hosting, and most significantly, a gaming system with hard drive and Internet access. And because the original patent dates back to 1999, the possibility that Xbox Live violates it has to make Microsoft just a bit nervous. Perhaps Gates is falling back on one of his favorite business tactics -- buying a competitor with a technology that threatens his own.
Sadly for Bill, Nintendo isn't for sale, preferring to stay independent. In general, Japanese companies are resistant to takeover attempts, and Nintendo shareholders would probably consider it a disgrace selling to an American company, particularly Microsoft. Whether the speculation ends here or not is anyone's guess.
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Fool contributor Chris Mallon is still trying to beat the original Metroid and owns shares in Microsoft.
