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Could Social AR/VR Be Nintendo's Next 'Blue Ocean'?

We might have figured out what Nintendo's NX could be.

Nintendo

“If you do the same thing as others, it will wear you out. Nintendo is not good at competing so we always have to challenge [the status quo] by making something new, rather than competing in an existing market. … It’s often called the “Blue Ocean Strategy,” looking for something that no one else is working on. … It is an unwritten company credo, something that runs deep in our DNA.” — Satoru Iwata

Iwata-san was taken too soon, but his spirit lives on inside Nintendo. There is a proven brain trust of creative geniuses across all aspects of games, from development to strategy to marketing. Their legacy includes losing and winning back market leadership multiple times in the Nintendo way.

But where is Nintendo’s Blue Ocean today? The Wii U didn’t scale, and the DeNA mobile partnership appears to take Nintendo into a hypercompetitive red ocean, even if it does deliver commercially. But Iwata said the mysterious NX would be offered “through a Nintendo-like solution.” If NX is to be Nintendo’s next Blue Ocean and regain market leadership, what could that look like? Again in Iwata’s words, “thinking differently and holding strongly to your strategy can disrupt an entire industry, and in a good way.”

“All warfare is based on deception.” — Sun Tzu

Digi-Capital forecasts that augmented reality and virtual reality could hit $150 billion, disrupting mobile by 2020, with AR taking the lion’s share at $120 billion and VR $30 billion. The larger market for games will be VR, as shown by Facebook/Oculus, Sony and HTC marketing their VR products initially as games machines. Microsoft and others are pushing AR’s general computing potential rather than games, because it has broader use cases and isn’t as much fun for immersive games.

Reggie Fils-Aime, president and CEO of Nintendo of America, commented, “We have knowledge of the technical space, and we’ve been experimenting with this for a long, long time. … What we believe is that, in order for this technology to move forward, you need to make it fun and you need to make it social … [at E3] based on what I’ve seen to date, it’s not fun, and it’s not social. It’s just tech.”

Legendary game designer and producer Shigeru Miyamoto backed Fils-Aime: “I noticed a number of dream-like demonstrations for which the schedule and format for commercialization are unknown. The current software for these virtual-reality devices cannot be played simultaneously by a number of people, and since it is generally expected that the development for the applicable software for a high-performance device will take two to three years, there were a number of visual demonstrations for virtual-reality devices.”

Although not mentioning AR/VR, Iwata said of Nintendo’s NX strategy, “NX is a new platform, so the installed base will have to be built up from zero. … If I mention every detail of what we are newly thinking, it could be persuasive but it could also give other companies the opportunity to come up with counterplans or implement the ideas that they find interesting.”

The short version is that Nintendo seems to think competitors’ AR/VR:

  • Is not fun
  • Is not social
  • Won’t have commercially viable games for two to three years.

Nintendo also isn’t telling anyone what it is doing with NX. So let’s try to figure it out.

“Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth.” — Sherlock Holmes

First try to eliminate what appear to be non-Blue Ocean markets for Nintendo:

  • “There is no truth to the report saying that we are planning to adopt Android for NX,” said a Nintendo spokesman. Why would they? Ouya didn’t scale, and a “Nintendo-like solution” means integrated Nintendo hardware and software.
  • Direct PS4/Xbox One competitor: Late entry into a red ocean with two giant sharks? Doesn’t look like the Nintendo way.
  • Another low-end traditional console with a controller/screen twist: The Wii U didn’t scale, and Nintendo learns from its mistakes by not repeating them.
  • Direct HTC Vive/Facebook Oculus competitor: The integrated hardware and software for a “Nintendo-like solution” can’t be unified completely in high-end, expensive and variable-spec PC-based systems.
  • Direct Microsoft HoloLens competitor: Nintendo has no experience competing with high-end general purpose computing devices, and even Satya Nadella is steering away from games for the early AR market.
  • Direct Sony Morpheus competitor: This would require a direct competitor to PS4/Xbox One as a base platform, so again a red ocean.

Follow the Breadcrumbs

We’ll have to wait till next year to find out what NX’s Blue Ocean is, but let’s try flipping Nintendo’s comments about AR/VR to see what we get. Nintendo appears to think that AR/VR should:

  • Be fun
  • Be social
  • Have commercially viable games early in the market.

Also consider Iwata’s description of the Nintendo/DeNA partnership at the same time as announcing NX as a dedicated game platform: “Smart devices have the widest reach and … the strongest potential … to connect with the largest number of consumers. We aim to construct a bridge between smart devices and dedicated video game hardware … dedicated video game systems, and smart devices will benefit from synergies created between them.”

The partnership also extends to joint development of a membership service across all devices including NX. Cross-ownership of shares in Japanese partnerships isn’t unusual, but the joint share stake as part of the deal looks deeper than an arms-length commercial relationship.

X Marks the Spot

Put all this together and there could be a Blue Ocean which Nintendo (or someone else) might open. Let’s call it “social AR/VR games”:

  • Low-cost dedicated video-game console (i.e., spec equal to or lower than PS4/Xbox One) optimized for AR/VR with high-quality positional tracking for immersion
  • Low-cost VR, AR or mixed-reality head-mounted displays to enable social gameplay. These could either be dedicated HMDs or smartphone HMD holders similar to Samsung GearVR/Google Cardboard.
  • “Non-gamer”-friendly dedicated wireless controllers to address the mass market
  • Integrated hardware/software platform for consistent performance
  • Multiple high-quality (and fun) bundled games at launch
  • Dedicated SDK for third-party game developers.

This looks a bit like the original Wii strategy applied to the AR/VR market in the context of smartphones, and could enable Nintendo to leverage its IP to again “disrupt an entire industry, and in a good way.”

Incorporating smartphone HMD holders could enable social gameplay by lowering total system costs (i.e., cheap HMDs using smartphone displays), as well as allowing iOS/Android game developers to leverage existing skills and IP with a dedicated SDK (i.e., lower game-development costs and earlier commercial viability).

High-quality positional tracking integrated with HMDs/controllers could also enable immersive VR like the Vive and Oculus, but at a much lower price point. Lastly, the DeNA partnership could be leveraged to incorporate the now dominant free-to-play (or “free-to-start” as Iwata described it) business model.

So, could this be Nintendo’s Blue Ocean for NX? We’ll have to wait until next year (or a Nintendo denial) to know if the thinking is in the right direction or not. But if not Nintendo, then who?


Tim Merel is managing director of Silicon Valley-based tech adviser Digi-Capital. There is more detail and more forecasts for each market in Digi-Capital’s quarterly Augmented/Virtual Reality Report and Games Report. Reach him @DigiCapitalist.

This article originally appeared on Recode.net.

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