I can also agree with that,surprise!

I entered here with the honest hope of finding a quote from Iwata.

Some people might portray disruptions as inevitable, but they aren't. They're just a very bad position for the incumbent. An incumbent usually has to be very flexible and suffer a certain degree of damage to its bottom line to stave off a disruption, and a lot of companies fail to muster the will, insight, and agility required to do it.

Microsoft was mentioned earlier in the thread. A few years ago, their hegemony in laptop operating systems was threatened by cheap netbooks running Linux. They responded effectively by coming out with netbook-targeted Windows SKUs, slashing licensing fees, and leveraging their considerable influence over OEMs. It cost Microsoft a good chunk of money, but good luck finding a Linux-based netbook nowadays. Disruption averted. Now we'll see how MS does against the tablet onslaught.

Nintendo's response so far has been to co-opt digital distribution, consolidate its position in the upmarket, and offer unique value that touchscreen phones have a hard time replicating, like 3D displays. Seems pretty defensive, but I think Nintendo can hold a lot of ground in this market in the short term, even if pocket computers cut off growth potential. There's no magic disruption bullet, so Nintendo is circling the wagons until an opportunity arises to break free. The question is when will such an opportunity arises, will Nintendo be able to seize it? And how much ground can they hold in the meantime?

Sorry, Squilliam, but I think you're reaching quite a bit to sell your point.  Your typewriter analogy is very flawed; as Rol pointed out typewriters are hardware meant for a specific function.  People no longer have a need for them because they can type on other devices.  What you're saying is that everyone will treat gaming as a secondary feature on other devices; people won't buy Nintendo's handhelds because they can game on their phones.  Problem is, there will always be people to whom gaming comes first, and people don't buy phones just to play games.

As far as your Farmville argument, well, I think you helped prove my point even more.  What empirical data you ask?  Oh, how about the 180 million home consoles sold so far this gen despite all of the Farmville playing on PCs.  And tell me, what happens when Farmville, or something like it, comes to those home consoles?

The only point I will agree with you on (halfway) is that Nintendo is very behind in the online marketplace, but again, why would Nintendo need to tackle this area all by themselves?  They definitely have the resources to hire, partner with, or flat out buy any "professionalized" assistance in that area.  Only reason they're so behind here is because they (erroneously, IMO) don't view online as a big deal for themselves... yet.  The part where your argument fails again is assuming that if Nintendo made smaller, cheaper games (ala Angry Birds) it would deter people from buying the next Mario Kart or Zelda at $25-$30.  Tell me, how much did the huge success of simple games like the Brain Age games and Nintendogs hurt the sales of NSMB DS?

Forget about that analogy, I wasn't thinking straight when I wrote it.

Anyway if you want proof of what smart phones are doing:

"The sales figures tell the story. While smartphone sales in the United States continue to skyrocket, unit sales of point-and-shoot cameras fell nearly 16 percent from 2008, according to the market research firm NPD Group. That corresponds to a decline of 24 percent in dollars, to $1.9 billion, from $2.4 billion.

Even when the recession eased over the last year, sales of point-and-shoots fell. At the same time, sales of more powerful cameras like S.L.R.’s, with advanced features like interchangeable lenses and manual settings, have increased, by nearly 29 percent in dollars since 2009, according to NPD."

Link

Now smart phones aren't even as good as point and shoot digital cameras. However they are good enough. Hence the reason why they are disrupting the typical digital camera market. The rest of the camera makers have retreated up market and into more specialist cameras which leaves the lower end of the market ripe to be overtaken by camera phones which aren't nearly as good.

So if smartphones packing mediocre cameras can do that to the digital camera market then why, pray tell me, can they not do that to the game industry when they offer both unique value in terms of their game pricing and distribution whilst catering to the widest audience in terms of user numbers? Just as a smart phone will never replace a digital SLR, a smart phone will never replace a game system for a dedicated game player. However someone who isn't so dedicated and simply wants something to spend 1-15 minutes at a time on may no longer find it worthwhile to own a dedicated game handheld when a smart phone can do almost everything they want it to do.

Theres no point in pointing to sales numbers without other evidence as proof that theres no effect on the industry, unless you have Earth 2 hidden somewhere so you can study the world of games without certain influences like smart phones you cannot say what the sales of certain devices or software would have been like under different conditions. If smart phones weren't having an effect on Nintendo then why do they appear to be retreating up-market? Why did they point to Apple as their biggest competitor/threat?

Finally, they can't just 'hire' assistance in developing an online presence. Most of the present players in the market between Apple, Amazon, Google, Microsoft, Sony have spent years developing their networks over multiple devices, many of which are not game devices. The reason for doing so is simple, its a network effect and once you gain a subscriber you're more likely to gain his or her friends as well simply because the networks are mostly exclusive to one another. You can't just click your fingers and catch up, nor can you get into the business without a willingness to spend in the hundreds of millions to billions range.

That is the rub. Nintendo's IP have always been so amazing because they control both the hardware and software end of the development. We wouldn't have Wii Sports if Nintendo didn't make a motion control. That game just wouldn't have been possible on Sony and Microsoft's machine (back then). Nintendogs wouldn't play the same on a PSP as it does on the DS. In fact, this is why Shigeru Miyamoto has so much invovlement with the console development for Nintendo hardware. He prefers to design hardware that will allow him to create the kinds of games he wants to create.Part of that creativity would be diminished if he were forced to work on some other company's platform.

Most hardware company's lack the vision that Nintendo has. Hate them or love them, Nintendo knows how to popularize unpopular or overlooked ideas. SEGA and Sony went with digital-pads, Nintendo went with analog sticks. Sony and Microsoft went with slow loading DVDs, Nintendo went with mini-DVDs for faster load times. Everyone went with the same controller design that has been around since PSone (effectively, some variation of the dual shock) and Nintendo went with motion controls. The innovation of Nintendo games are as reliant on the hardware they are produced for, as much as the game design itself.

With all of that said, I remember an article a few years ago where Iwata had suggested that Nintendo would transition to television and film thanks to the power of their IP. That ways, they would still be in control, but they could operate in a new environment, should gaming no longer be a prominent source of revenue.

OK, analogy forgotten.  However you've now brought up another:  Your camera analogy.  I don't doubt the info you posted, nor do I deny smartphones' many advantages, but cameras and games are two completely different things.  Before smartphones, how many people lined up on launch day to buy the latest Kodak or Polaroid point and shoot camera?  And yes, there will always be people who will just spend 1-15 minutes gaming on their phones, just as there will always be people who want to play full-fledged handheld games for a richer experience.  As I said in my earlier post, room for both.

And no, I can't experience an alternate timeline where PCs and consoles don't coexist to see how well consoles would be doing; I don't have to.  I never said they wouldn't be doing even better than they are now, but consoles are doing remarkably despite the presence of PC gaming.  Same goes for Apple being Nintendo's competitor.  Again, room for both.

And finally, they don't have to "click their fingers and catch up" if they were to partner with someone like Google or Amazon, who has already done the network development you mentioned.  Did Nintendo click their fingers for the chips used in the GC/Wii?  No, they partnered with ATI.  And as far as the money needed that you mentioned, if it came to their perseverance, Nintendo definitely has it to spend.

Correct me if I'm wrong, but I thought that the sales of digital SLR cameras have exploded in the past 5 years; and photography is one of the most rapid growing hobbies ... Or to put it another way, the smart phone did not eliminate the camera market it just captured the least demanding portion of the market.

Truth to be told, though, is that the transition to digital made SLR and prosumer-level cameras much more accessible. Thus, there was a market expansion for the upmarket because the difficulty slope to enter the hobby was greatly lowered. But where the market was already more saturated - the point and click, where the camera is not the means for an hobby but an appliance to shoot pictures of family reunions and vacations -  the smartphones have been indeed cannibalizing the market of dedicated devices.

The analogy with gaming devices is not perfect, but close enough IMO. Not everybody that owns a gaming device today, either home console, gaming PC rig or handheld, will define him/herself a gamer, nor would say that they have the hobby of gaming. It's just something they do on occasions, in the amount and modalities that have become mainstream norm. Please note that there's no judging on the merit of the issue from me here: someone has all the right to not think of himself as a car hobbist, and still enjoy having a nice car and be able to recognize really good car design choices from really bad ones.

Such users don't read magaziones or web sources for details about games, their design, their sales, their history, for example. That's something that enthusiasts do, from photography to cinema to cars to videogames. Such users would generally still be able to appreciate an exceptionally good movie over a good one, or NSMB over a good platformer of lesser pedigree and polish. The problem that Squidz seem to posing though is that if convergent smartphone/portable computers manage to give easier/quicker/cheaper access to good enough pick up and play entertainment content, then such comparison will never take place, because the needs of the customers have been already satisfied well enough to dampen further research. And that would make the expanded hanheld market where N has taken great inroads an inerently fragile one.

Where can N. go? I can think of

1) defensive battle over what some would call the disruptive values: availability on any device, cheapness, accessibility, net-awareness, variety. They can work on their online infrastructure for years, and they are capable of designing wonderful accessible experiences. But they will hardly be able to match the offer of universality, variety, cheapness that comes with hardware indipendent-ecosystems, a low entrance threshold for developers, wrapped in user-friendly universal digital delivery.

2) go into an entirely different direction and offer something the smartphones can't or won't. Specialized hardware, specialized services. But that sounds like entrenching into an upmarket niche, because those a re not choices that can greatly expand the market - not when the "disrupting values" are "easy to install on every hardware, cheap, accessible to pick up and play".

And I think the 3DS looks like a move along the direction of (2).

That said, I agree with the objection you seem to be raising - that even being likely that N. will become the upmarket niche of handhelds, that doesn't imply that they won't be satisifed with playing that less rapidly growing market. Just like Apple is not the first seller of mobile phones, but has been the first in revenue and will keep for along time the highest profitability against the Android devices tide.

Still, the SLR/point and click markets were already deeply tiered and divided. And while SLRs have made great inroads with the accessibilty granted by digitalization, N. won big money by trying to merge tiers downmarket and offering a "bridge" solution. Retiring into the upper niche might still be economically sound, but seems like the failure of an expansion strategy.

It wasn't an analogy. I was drawing a parallel between the camera market and the game market. Nintendo is on the lower side of the market, the point and shoot equivalent. Because their games tend to be simpler and because they draw from the wider market, their portion of the market would be the first to be effected by a rise of smart phones for games. If smart phones negatively effect GPS units when they implement similar features, if smart phones negatively effect cameras when they implement decent cameras then smart phones would effect handheld games devices as well when some good software starts to come out to take advantage of it. The whole smart phone market is growing at a rapid rate and the capabilities on average to play games is increasing again at a rapid rate so as a whole their numbers and effectiveness as games machines are increasing precipitously every year.

As far as deals with online makers go, Nintendo doesn't like to lose control. I don't think theres an online network out there which will simply let you 'buy in' without the device maker losing that control. If they did that then some other service provider would control their networking. So whilst they could spend the money they are a relatively small company so at minimum they would be forced to increase their headcount substantially. In any case regardless of all that they would also have to have the drive to create a good online network, it just doesn't seem to fit the culture of Japan at this point to really care about such things. So when they do create their online network if they do, it may be too late to make headway.