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Article about Nintendo's Innovation

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Anonymous
September 22, 2005 1:53:56 PM

Archived from groups: alt.games.video.nintendo.gamecube,rec.games.video.nintendo (More info?)

An interesting blog I ran across on the cybersuperhighway.
A site called LostGarden.com written by a guy named Danc, a game
designer-slash this-slash that (guy's done a lot & knows the gaming world
obviously).
Here's his complete profile link: (http://www.blogger.com/profile/7883434)
Here he mentions what the value & purpose of Nintendo's innovation strategy
is.
A very insightful piece I have to say.
This post is especially for those who believe Nintendo's on its last legs.

Education begins now.
John Lucas

http://lostgarden.com/2005/09/nintendos-genre-innovatio...

Friday, September 16, 2005
=============================
Nintendo's Genre Innovation Strategy:
Thoughts on the Revolution's new controller
=============================

Hello Penny Arcaders! (And Slashdot, Evil avatar, Kotaku, 4colorrebellion,
Joystiq and many others)

I'm looking for mirrors since my little academic game design site is
currently out of bandwidth as a result of all the interest. 40% of my
monthly bandwidth was eaten in roughly 30-minutes. Sweet.

* If you have mirrors of this article send me an email at
daniel.cook@anark.com.
* Comments have been temporarily turned off to save on bandwidth. You can
post comments here in the meantime.

take care
Danc.

===========
Onto the article!
===========
I’m still jet lagged from my recent trip overseas, but I managed to stay
awake for the new Nintendo controller announcement. I must say that I’m
feeling like an excited Japanese school boy waiting in line for the latest
Dragon Quest.

I’m not going to tackle whether or not this innovative device will be a
market success for Nintendo. There will be so much riding on the 1st party
titles, the 3rd party support and the actual technical implementation of the
controller that any comments at this point are at best opinions and at worst
propaganda.

What we can however discuss in some detail are the two central philosophies
behind the Revolution controller and their market implications.

* The increasingly hardcore nature of the game industry is causing a
contraction of the industry.
* New intuitive controller options will result in innovative game play that
will bring new gamers into the fold.

Is Iwata-san spouting nonsense or is Nintendo actually onto something?


==============================
Genre maturity leads to market consolidation
==============================
In past articles I’ve discussed two key concepts. The first is genre
addiction and the second is the genre life cycle. These both have major
market implications for both individual game developers, but also for the
market as a whole.

To briefly recap, genre addiction is the process by which:

* Players become addicted to a specific set of game mechanics.
* This group of players has a strong homogenous preference for this genre
of games, creating a well defined, easily serviceable market segment.
* Game developers who release games within a genre with a standardized set
of play mechanics are most likely to capture the largest percentage of the
pre-existing market.
* Over time, the game mechanics defining the genre becomes rigidly defined,
the tastes of the genre addicts become highly sophisticated and innovation
within the genre is generally punished by the market place.

Genre life cycle is the concept that game genres go through distinct stages
of market status as they mature:

* [[Introduction:]] A new and addictive set of game mechanics are created.
* [[Growth:]] The game mechanics are experimented with and genre addiction
begins to spread.
* [[Maturity:]] The game mechanics are standardized and genre addiction
forms a strong market force. Product differentiation occurs primarily
through higher layer design elements like plot, license, etc.
* [[Decline:]] The market consolidates around the winners of the
king-of-the-genre battles that occurred during the Maturity phase. New games
genres begin stealing away the customer base. With less financial reward,
less games are released.
* [[Niche:]] A population of hardcore genre addicts provides both the
development resources and audience for the continued development of games in
the genre. Quality decreases.

What we see here is the consolidation of game designs over the life cycle of
the genre. Early examples within a genre tend to have a wildly diverse
spectrum of game mechanics that appeal to a broader spectrum of players. As
the genre matures, the game mechanics become more standardized and the needs
of the genre addicts more homogenized. As the market segment consolidates
and standardizes, the majority of the players are well served. They get more
polished games that have greater depth. Who could argue that a tightly
polished game like Warcraft is a bad thing?


=====================================
How maturity reduces the number of total game players
=====================================
[[Goodbye people on the fringes:]]
The people on the fringes, however, are left out. In the evolution of the
RTS genre, there was an interesting offshoot in the form of the Ground
Control games. These sported an interesting 3D perspective that was never
truly adopted by the mainstream RTS producers. Most players within the
identifiable RTS market segment did not enjoy these games and so it was not
in the best interest of the game developers to include the innovative
features in their designs.

However, some players enjoyed these titles quite a lot. As the mechanics for
RTS games become highly standardized, these fringe players were alienated by
games in the mature genre. A 2D Warcraft title just didn’t provide the same
rewards that this fringe group was looking for.

Some of those gamers left gaming. It may take being alienated from several
genres, but eventually a few decided that there were better activities to
spend their time on. The market was simply not serving their needs. This
shrinks the market.


[[Goodbye semi-hardcore:]]
The mainstream group, however, fares only a little better. When you recycle
the same standardized game mechanics, you put players at severe risk of
burnout on a genre. There are only so many FPS many people can play before
they don’t want to play them any more. This is less of a problem for the
super hardcore players. However, it is a substantial problem for the less
hardcore players.

As the less hardcore players burn out on the game mechanics of their
favorite genres, they too are at risk of leaving the game market. The result
is a steady erosion of the genre’s population.

What is left is a very peculiar group of highly purified hardcore players.
They demand rigorous standardization of game mechanics and have highly
refined criteria for judging the quality of their titles. With each
generation of titles in the genre, they weed out a few more of the weaker
players.

This is a completely self-supporting process with strong social forces at
work. Players form communities around their hardcore nature. They happily
eject those who do not fit the ideal player mold. They defend the validity
of their lifestyle with a primitive tribal passion.

There is no internal force within a genre lifecycle that can break this
cycle. Only external forces can do the trick. The question is, who would
want to break this cycle and who wants to maintain it?


=======================
Who genre maturation is good for
=======================
Genre maturation is great for the very small minority of AAA developers that
can serve the hardcore market. They release titles known as genre kings that
are able to address the needs of a large percentage of an existing, well
defined segment of genre addicts. Genre kings dominate a particular genre
with impressive financial results. The amount of money genre kings such as
Halo 2, Half Life, Warcraft, Grand Turismo and other rake in is an
inspiration to both developers, gamers and publishers everywhere.

Hardcore genre addicts easily pay for themselves. On average they are
willing to spend substantially more on games than the casual or the fringe
gamer. When a genre becomes standardized, there is literally an explosion of
revenue that comes from successfully tapping into a uniform set of needs.
This scalability is a basic attribute of software and is a major mechanic
behind hit making in the game industry.

As long as new genres are being created and money gained from better
capturing homogenous segments genre addicts is high, the industry as a whole
grows with a few fat king of the genre companies taking in the majority of
the money.


===================
Who consolidation is bad for
===================
However, when the majority of money and effort is spent on capturing
existing markets and not enough is spent on seeding new genres, the natural
erosion of less hardcore players begins to decrease the overall market size.

It is easy to ignore this trend. Overall player numbers may decrease in
certain genres, but remember that hardcore players spend more and flock to
specific games in great numbers. So total revenues keep going up, and the
revenues of hit titles keep going up. It seems silly to shout that the sky
is falling when there are so many examples of over-the-top success. This is
the current state of the American game market.

Only after the trend has been going on for some time does the erosion become
too much to ignore. The substantial decreases in the overall revenue of the
Japanese market place over the last five years provided a major warning
signal. You could easily argue that similar erosion has occurred in the PC
market.


[[People who are less likely to care:]]

* [[Sony and Microsoft have built strong brands around servicing the
hardcore players of existing genres.]] To say that the sky is falling shows
a lack of faith in the hardcore market - that could be very damaging.
* [[Major genre king developers like Blizzard, Valve, Epic and Square.]]
Their bread is buttered. They own the mature genres and will milk them for
many years to come.


[[People who are more likely to care]]

* [[Companies that serve a diverse user bases:]] Oddly enough, both EA and
Nintendo are in this group. They are broadly diversified such that major
trends in industry directly affect their bottom line. Sony is in a bit of a
pickle since they fit this definition as well. (Hence they’ll release the
Eye Toy, but keep their main controller for the PS/3 as standard as humanly
possible)
* [[Companies that value brands over genres:]] People often look at Nintendo
’s releases of a half dozen Mario games a year and assume that they are all
clones. In fact, they are typically radically different games across a wide
variety of genres. Nintendo gains their value from the Mario brand, not
ownership of a specific genre. Brand-based companies rely on the creation of
new genres since they can take that brand into the genre for a low risk
profit opportunity.


===================
Nintendo needs new genres
===================
That last point about the strategies of brand-based publishers is an
important one. Nintendo needs new genres to make money.

Nintendo makes the majority of their money by leveraging their brand
recognition during the early to mid-stages of a genre’s life cycle. The
power of the Mario character can establish a Nintendo game as an early genre
king and help tap into a new market segment for great profit. However, as
they get later into the life cycle, the standardization of the genre
mechanics and the intense demands of the hardcore population reduces the
power of the brand.

A few major games will dominate the mature genre and it is unlikely that
Nintendo’s will be one of them. Nintendo’s fixation on new genres and their
unwillingness to pander completely and utterly to the existing hardcore
audiences has made their name mud with many of the most vocal elite in the
game industry.


=================================
Product innovation leads to increased profitability
=================================
C’est la vie. You can’t have it all. Focusing on product innovation at the
expense of commodity markets is a classic business strategy that is used
successfully in non-game companies around the world. Companies like 3M are
required as part of their strategic plan to have 30% of their revenue come
from new products. They are constantly exiting markets when strong
competition emerges and constantly competing with themselves by offering new
products that outdate their existing products. Nintendo releases new genres
where other companies release new products, but the basics are the same.

The non-business person looks at this strategy with horror. Nintendo
invented the 3D platformer, yet they have no major product in that niche at
the moment. Surely this is the most obvious sort of stupidity. However,
consider the following portfolio management issues:

* The likelihood of getting a genre king early on in a genre life cycle if
you invented the genre is quite high. Competition is limited.
* The cost of creating a genre king early in the genre life cycle is low.
You can rely on things like simplified graphics and limited amounts of
content. The neo-retro graphics of most Nintendo games has a lower cost of
production than the realistic look of many of its competitors.
* The cost of creating a genre king late in the genre life cycle is high.
Customers demand realistic graphics, voiceovers, cut scenes, loads of extra
content, etc.
* The risk of having your game not becoming king of the genre goes up. The
competition is simply greatly increased. Mario is a great game, but would it
own the entire genre if it were forced to compete against Jax and Daxter,
Sly Cooper, Prince of Persia and others?

What you find is that selling innovative products early on can be
dramatically more profitable and less risky than selling commodity products.
The early market might not be as large, but the money is much better. You
see this over and over again. Nintendo sells less but makes more money. Sony
and Microsoft sell more, but make less profit.

Consider this tidbit. The Xbox, which focuses on highly mature genres
catering to hardcore gamers has production costs of $1.82 million a title.
The Gamecube costs half as much at $822,000 a title. The real kicker is that
the Nintendo DS only costs $338, 286 a title to develop for, even less than
the Gameboy. Some of these costs have to do with the hardware and
development kits, but for the most part they are derived from the scope of
the projects. Being able to develop successful titles at 1/5th the cost of
your competitors is a major boost to your bottom line.

Thus, Nintendo’s profitability and need to innovate go hand in hand. They
need those new genres because the old ones quickly become too competitive
and too expensive.


=================================
New controller features as a source of Innovation
=================================
The new controller is best seen in light of this larger corporate strategy.

One of the easiest ways of creating a new genre is to invent a new series of
verbs (or risk mechanics as I called them in my Genre Life Cycle articles).
One of the easiest ways of inventing new verbs is to create new input
opportunities. Nintendo controls their hardware and they leverage this
control to suit their particular business model.

And this is exactly what Nintendo has done historically. The original Dpad,
the analog stick, the shoulder buttons, the C-stick, the DS touch pad, link
capabilities, the tilt controller, the bongo drums…the list goes on and on.

Each time, they also bundle the controller innovation with a series of
attempts at creating new dominant genres. Not all attempts are successful,
but a few of them are highly successful. The 2D platformer, the 3D
platformer, the Pokemon-style RPG, and the virtual pet game all come to mind
as successes. By seeding a genre and by owning the key hardware platform
that the new genre lives on, Nintendo achieves a position of financial
stability and security that is unheard of in the game industry.

As a side note, folks who argue Nintendo should just make games for other
platforms are completely missing the point. Nintendo needs to control their
hardware platform in order to force innovation to occur in the control
mechanisms. Other console manufacturers who rely on the hardcore audiences
and standardized genres don’t see this need. They would happily standardize
the console platform and make it into a commodity. Microsoft has
historically made major comments about having one universal development
platform.

The moment Nintendo loses control over their hardware, they lose a major
competitive advantage in terms of creating new genres.


=============
The new controller
=============
The new controller is yet another logical step along a path that Nintendo
has been pursuing for many years. We are likely to see some very obvious
patterns repeated.

* It allows for a wide variety of new verbs that are unique to Nintendo’s
hardware platform
* There will be a number of genre-seeding attempts that take advantage of
the new verbs that are available. With luck and a lot of skill, one or more
of these will become a major new genre. New genres bring in new gamers who
are loyal to Nintendo.
* Nintendo will leverage their powerful brand to encourage early adoption
and dominance of this genre. I’ll make a bet that Mario, Pokemon or other
major Nintendo brands will be a major element of their new genre attempts.
* As the years pass and the genre becomes mature, hard core gamers will
consolidate within it and begin demanding more polished experiences.
Craftsman-oriented companies will wrest control of the genre away from
Nintendo.
* Nintendo will innovate once again in order to maintain higher profit
margins.


=======================
Some predictions about the games
=======================
There are also some obvious predictions that we can make about the game
designs based off the standard genre lifecycles.

* Early titles will be essentially technology demos that showcase a
specific core mechanic. There will be one or two major titles such as Mario
64 of yore that are highly evolved, but these will be few and far between
due to the cost associated with evolving an entirely new genre over the span
of a single game.
* Most early titles will sell small numbers, but will end up being decently
profitable due to their low cost. The example given of Brain Training on the
DS, which was created in a mere 4 months comes to mind. Even though it isn’t
selling what are typically considered ‘blockbuster’ numbers, it is an
unqualified financial success. During this period a large number of new
genre attempts will be successfully vetted.
* Only after a year or so will 2nd generation ‘polished’ games start to
emerge. The cream of the core game mechanics tested in the first generation
will be layered with all the traditional trappings of a modern video game.
* One or two ‘major new genres’ will emerge. These will be highly
profitable and Nintendo will attempt to turn some of them into exclusive
franchises. Mario Kart and Mario Party are good examples of this from
previous generations.

So when games come out slowly and only appear to be technology demos, I
wouldn’t worry too much. A ‘gimmicky game’ is really just another name for a
new core game mechanic that hasn’t been polished. Donkey Kong is considered
shallow and gimmicky by children playing it for the first time in this
modern age. Yet it sported the same core game mechanics that eventually
blossomed into an entire genre of highly polished 2D platformers.

In the past, Nintendo built these new genre attempts internally. They got to
own the IP and enjoyed the resulting success that comes from being one of
the few to understand the benefits of innovation. The result has been a
focus on a small number of 1st party development efforts and a trickle of
titles. Unfortunately for them there are other innovative people in the
world. New genre successes such as GTA on other consoles provided
substantial and painful competition.

I see this changing somewhat with the DS. We are starting to get some wacky
ideas from smaller companies and Nintendo seems to be a bit more welcoming
of others. Nintendo needs to pursue this path further by allowing new
companies to join the experimentation stage.


========
Conclusions
========
Nintendo’s strategy of pursuing innovation benefits the entire industry. It
brings in new audiences and creates new genres that provide innovative and
exciting experiences. The radical new controller is a great example of this
strategy in action.

Surprisingly, this also benefits Microsoft and it benefits Sony. As the
years pass, the hard core publishers that serve mature genres will adopt
previously innovative genres and commoditize them. Their profits will be
less, but they’ll keep a lot of genre addicts very happy. Everybody wins
when a game company successfully innovates.

I see both of these strategies as a necessary and expected part of a vibrant
and growing industry. Industries need balance and Nintendo is a major force
of much needed innovation that prevents industry erosion and decline.

On a slightly less analytic note, I for one can’t wait to play the new games
on the Nintendo Revolution. With all the new game ideas that will be
demonstrated, it is certainly a great time to be a game designer. A couple
years down the road, I suspect that this will also be a great time to be a
gamer. :-)

Take care
Danc.

posted by Danc at 11:25 PM

http://www.blogger.com/email-post.g?blogID=11719805&pos...
======================================
The commentary to this blog will be posted afterwards
(too long for one post)
September 23, 2005 10:55:31 PM

Archived from groups: alt.games.video.nintendo.gamecube,rec.games.video.nintendo (More info?)

Hey, this is a great article. In fact, I haven't read anything like
this in a very, long, long time. Is very informative, and what I like
most importantly, it breaks down with almost pin-point accuracy what
Nintendo is trying to do, and he backs it up through Nintendo's past
history. I'm no business major, nor do I have any inkling as to how to
run a business, but everything that he mentioned here sounds very true
to what I think Nintendo itself is trying to accomplish again. Nintendo
is a very innovative company with some innovations blowing up in their
faces(Virtualboy anyone?), but the article explains to a T, why
company's often seek innovation, or go that route. Is not always the
safest route, but the rewards can prove a great advantage if all goes
well, and the new tecknology is accepted. (NDS for example)It really
makes sense what was explained in the article, and I full
whole-heartedly agree.

Awesome article!!!
Now, if only more great writting like this could be found on the
internet, I'll be logging on more hours on the net. (sigh)
!