Awesome article on Nintendo's corporate strategy

[Asher]

Originally posted by Nikolai
Their market share might be low, but they do earn lots of money on it. And when you think of how relatively small expenses there are on making Nintendo games compared to other games, and that they still sell at the same price, it does give them a upper hand. Besides AFAIR, they actually did earn money on their console AND their games, while MS and Sony looses money on their console(in addition to their lesser income on their games).

Nintendo's profits were down something like 69% this year. It doesn't matter if you make a tiny profit on both console and games if no one buys them.

Yes, MS lost $4B over the last 4 years on Xbox, but that was their plan to enter the market. And it worked fabulously well, Xbox has momentum now and Nintendo's way behind them in the back of the race. They plan to make money on the Xbox 360.

You are corrrect; Nintendo is the only one of the "big 3" to have turned a profit on this current generation. And, if current projections are correct, Microsoft won't turn a profit on the 360 for at least 3 years, assuming sales stay strong.

Where did you hear that? First I've heard of it, and it seems completely wrong to me.

[ZargonX]

Where did you hear that? First I've heard of it, and it seems completely wrong to me.

It was on next-gen.biz. It was a few weeks ago; I will try to dig it up.

Nintendo's profits were down something like 69% this year. It doesn't matter if you make a tiny profit on both console and games if no one buys them.

Actually, it does make a difference. If I'm selling a million units of something, but never turning a profit, it will turn into a problem eventually. If I only sell 5 units of something, but make a $1 profit in total, I can continue on indefinitely. A profit, even if it's just a mere penny, is still a profit. A loss, no matter how much of a market leader you are, is still a loss and can't be sustained indefinitely.

[Asher]

Actually, it does make a difference. If I'm selling a million units of something, but never turning a profit, it will turn into a problem eventually. If I only sell 5 units of something, but make a $1 profit in total, I can continue on indefinitely. A profit, even if it's just a mere penny, is still a profit. A loss, no matter how much of a market leader you are, is still a loss and can't be sustained indefinitely.

It's far more complicated than that. There's this idea in the business world of a "loss leader"...something that you lose money on to gain marketshare or otherwise attract more customers.

MS made the decision early on that they'd never turn a profit with the original Xbox (and last I checked Sony is making money from the PS2). The idea is to gain mindshare for the next release, which they're far more focused on cost reductions with. Which they can do now that they have the mindshare.

[Adrian Hon]

http://www.gamasutra.com/php-bin/news_index.php?story=6051

Interesting article about Nintendo's profit drop in the recent quarter - their share price wasn't affected, and they're apparently still on track for a $1 billion operating profit this year (not surprising, since most sales will around Christmas). $1 billion ain't too shabby.

[lord of the mark]

Originally posted by Asher


It's far more complicated than that. There's this idea in the business world of a "loss leader"...something that you lose money on to gain marketshare or otherwise attract more customers.

MS made the decision early on that they'd never turn a profit with the original Xbox (and last I checked Sony is making money from the PS2). The idea is to gain mindshare for the next release, which they're far more focused on cost reductions with. Which they can do now that they have the mindshare.

4 billion to gain mindshare in a mature industry? Or does MS expect video gaming to take off once again?

[Asher]

Video gaming is taking off.

It's not just video gaming though. Look at the direction of the next-gen consoles, it's a fight over putting a computer in the living room, video games are just the catalyst.

For example, Microsoft is now backing HD-DVD while Sony is backing Blu-Ray for the next DVD format. Both of them are adding more and more media capabilities to the boxes, and in the near future it's not that unlikely to see the consoles being used as "home servers" as well with "thin clients" being deployed around the house.

There's a lot of ways for this to go, and if MS wants to maintain its position it needs to be aggressive in entering all industries that may displace the desktop PC...or in industries it believes will take off.

[Darkstar]

Originally posted by Asher
Nintendo's profits were down something like 69% this year. It doesn't matter if you make a tiny profit on both console and games if no one buys them.

Minor point. If no one is buying them, then I want to learn from Nintendo's accountants! Someone is buying them, and Nintendo is making a profit.

[Darkstar]

Originally posted by lord of the mark
4 billion to gain mindshare in a mature industry? Or does MS expect video gaming to take off once again?

Actually, video gaming is expected to continue eating up the movie entertainment market share (and to some extent, the TV market). So, if you can afford to waste a few billion (they sound like the gov'mint), to build branding and customer base in that market space, it's a good thing.

Besides, MS wants to be competitive in the entertainment hub vending. They want you using your Mega 5000 X-Box game/DVD Player/DVR, rather then letting Sony or someone else take that spot. They are playing the odds that gaming, DVD, DVRs (and whatever else) will converge.

It's all about having that treasured place by the TV at home. The plan is that you should never unplug that device to run another device with the output to your main TV. They'd also like to leverage that device, so that you could stream material from your Windows PC to it. Gee, I wonder why?