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Why Nintendo is changing its whole strategy and embracing Apple

Nintendo’s recent failures have pushed the company to try some new things.

Shigeru Miyamoto announces Super Mario Run for the iPhone.
Shigeru Miyamoto announces Super Mario Run for the iPhone.
Stephen Lam/Getty Images

Nintendo dropped huge news on Wednesday: It will develop and release a Mario game, called Super Mario Run, for the iPhone by December and other mobile devices later on.

For Nintendo and gamers around the world, this is very big. Since it got into video games in the 1970s, Nintendo has largely restricted its big franchises, and particularly the games in those franchises that it directly develops, to its own hardware — the original Nintendo, Super Nintendo, Nintendo 64, Game Boy, Nintendo DS, and so on. With its announcement, the company is showing a serious commitment to the mobile phone market — and doing so with Apple as a major ally.

But Nintendo didn’t decide to stroll out Shigeru Miyamoto, the legendary creator of games like Super Mario Bros. and The Legend of Zelda, to the stage of Apple’s iPhone 7 event on Wednesday on a whim. This news has been long in the making — not solely the specifics of working with Apple, but Nintendo’s embrace of the mobile market in general.

Although Nintendo is one of the most recognized — and best — game developers, its hardware business is seriously struggling. The Wii U, the successor to the very popular Wii, is an absolute flop. And the Nintendo 3DS, the handheld successor to the also very popular DS, isn’t doing too much better, with 3DS sales consistently lagging the DS.

So Nintendo is looking to shore up in alternative markets — like the iPhone. And it’s not just with Mario — Nintendo in April also announced mobile games for two of its smaller franchises, Fire Emblem and Animal Crossing. This is a significant move for the company — and it tells us a lot about where much of the gaming industry is headed.

Nintendo’s hardware business is struggling

The numbers tell the story. Since it launched in 2012, the Wii U had, as of earlier this year, sold below 11 million units. In comparison, the Wii had sold nearly 10 times that since it launched in 2006, and the GameCube sold twice that amount since its release in 2001 (mostly through 2006, when the Wii replaced it).

Nintendo console sales. Nintendo via Tech Insider

The 3DS is doing much better, with more than 54 million units sold. That’s a promising number, but far below expectations. Every once in a while, analyst VGChartz looks at how the DS, the 3DS’s predecessor, was doing at the same point in its lifespan as the 3DS. The results are brutal for the newer console:

The Nintendo 3DS is lagging seriously behind the Nintendo DS. VGChartz

It’s no surprise, then, that Nintendo’s stocks remain down about 60 percent since the peak of the Wii and DS in late 2007.

This isn’t because the console market is dead. As Eurogamer reported, the Xbox One and PlayStation 4 have so far outsold their predecessors. Nintendo’s struggles are unique — driven by what the company now admits was poor marketing for the Wii U, and at least some hemorrhaging in the 3DS handheld market to the growing mobile gaming market. (The latter reportedly led former Nintendo President Satoru Iwata to call Apple the “enemy of the future.”)

One clear example of the poor marketing is in the name: For the casual consumer, how is the difference between a Wii and a Wii U or a DS and a 3DS entirely clear just based on the name? It’s clear, based on the name alone, that the PlayStation 4 is an upgrade to the PlayStation 3, but not so much for the Wii U or 3DS. Worse, the Wii U and 3DS look very similar to their predecessors, suggesting that they may just be an optional addition to the existing consoles — for example, maybe the Wii U’s tablet is just a new controller for the Wii and the 3DS is just a DS with a 3D add-on.

Now, Nintendo plans to release a new console sometime next year — codenamed the NX. So Nintendo isn’t looking at these numbers and abandoning its hardware business altogether. Instead, it is seemingly trying to hedge its bets.

The mobile market is a natural place for that: As Nintendo’s hardware business lags, the mobile gaming market is booming.

The mobile market for games is booming

As hardware on mobile devices has become more capable of running more advanced games (not that there’s anything wrong with Snake or Tetris, but come on), developers have begun to take mobile gaming more seriously. And so have consumers: According to Statista, the number of mobile phone gamers in the US doubled to more than 164 million from 2011 to 2015 — and appears set to reach more than 210 million in 2020.

A chart of the number of mobile phone gamers. Statista

To put that in context, mobile phones hold a bigger platform of gamers than any one Nintendo console — even the massively successful Wii and DS — ever had. Based on the sales numbers for Nintendo hardware above, US mobile gamers make up nearly three times the population of gamers on the current Nintendo consoles, the Wii U and 3DS.

This holds up even when looking at other game developers: The most successful game console of all time — the PlayStation 2 — has sold just shy of 54 million units in the US since 2000, according to VGChartz. That’s still less than a third of the number of total US mobile gamers.

Mobile users aren’t necessarily as profitable per person as console gamers — mobile games tend to cost a few bucks or nothing at all, while console games are typically between $40 to $60. But mobile offers a huge user base nonetheless — and big game developers, from Nintendo to Square Enix (creators of the Final Fantasy series), are taking note of that.

The mobile games market is also particularly big in Japan, where Nintendo is based. Although the Japanese market is smaller in size, users are apparently more willing to spend cash: According to Statista, the average user in Japan is willing to spend nearly twice as much as the average US consumer on mobile games each year — $64 in 2016 in Japan versus about $33 in the US. This is why market analyst SuperData concluded that “Japan is the world’s largest mobile games market” despite its smaller user base.

For Nintendo, getting into these markets is potentially a very profitable venture — and not just because of software sales within that market.

Nintendo may be able to play the mobile market to boost sales in other areas

Pokémon Go on a Japanese phone. Kazuhiro Nogi/AFP via Getty Images

One lesson from the smash hit of this summer’s Pokémon Go is that the success of a popular Nintendo franchise in the mobile market doesn’t have to be exclusive to the mobile space.

After the release of Pokémon Go, Nintendo’s stocks skyrocketed — more than doubling over the course of July. The company later clarified that it did not expect to make too much money from Pokémon Go, as a bulk of the profits will go to Niantic, the creator of the game, and Alphabet (formerly Google), which invested in the product.

But Nintendo’s stock was still 73 percent higher in early September compared to June — meaning it still benefited overall.

Similarly, after Pokémon Go, other Nintendo products massively benefited. The latest Pokémon games for the 3DS, Omega Ruby and Alpha Sapphire, sold 80 percent more this July than they did in July 2015. Nintendo 3DS hardware, meanwhile, had its best-selling month ever in July. Nintendo attributed some of these increases to the release of the popular game Monster Hunter Generations and a price drop for one of its handhelds, but it also said the buzz around Pokémon Go significantly helped.

I can personally vouch for this: After not getting into a Pokémon game for a few years, I bought Omega Ruby in August after getting caught up in the hype surrounding Pokémon Go. (It was well worth the purchase: It’s a good game, as Polygon’s review notes.)

Other successes in the mobile market could play out similarly. Do you like Super Mario Run on the iPhone? Maybe you’ll be more interested in checking out the new, bigger Mario game for the Nintendo NX. Maybe you’ll even buy the Nintendo NX to check it out.

This is the gamble Nintendo is playing here: Not only could the mobile market provide a new source of revenue for a somewhat struggling company, but it could shore up its more traditional businesses too.


Watch: Super Mario Run in action


Correction: A reference to the Xbox One in this article initially called it the Xbox 360.

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