That's a very interesting perspective, I hadn't really thought about DSi as disrupting the iPod Touch, but on some level it does make sense. However, there is more disruption going on at the moment than just the hardware products: the retail value chain is fighting a losing battle against the digital distribution, and on that front Apple is the disruptor that is forcing other players to change their game. And that change is going to be much bigger than most people anticipate, as it is going to change the value chain of not just software but also hardware retail, thanks to the prevaling business model in the game business. It is actually incredibly strange that the big three have seemingly done nothing to shield themselves against the coming disruption.

Apple, on the other hand, has been preparing for years.

If you don't know what I'm talking about, let us take a look at the retail value chain of video games and consoles. I don't really have exact figures, so please be patient. And if you do have facts, please let me know, I'm always eager to learn more and correct my mistakes. Anyway, onto the retail value chain. Your average retailer makes his money from games and accessories. The console profits are so slim that it is likely they take a slight loss from selling and stocking them. What happens with the digital disruption is that the retailers lose the game business, and with that goes a big part of their profits. Can retailers survive on the profits from accessories alone? I think that's unlikely. Specialty stores won't have other income streams to keep them afloat, and big electronics and department stores who could afford it have more profitable items to fill their shelves with. You may think it's a law of the universe that retailers sell game consoles, but retailers are out to make business and if they have lines that are worse business than other's, they are quick to dump the bad lines for more profitable ones.

If game sales go digital, the big three will have a problem in maintaining their retail presence. Most likely that would necessitate a change in the profit structure of consoles => bigger retailer margin => a price increase of maybe 15-20%.

So, why is Apple shielded from this? Because Apple retailers make their money mostly from selling Apple hardware and 3rd party accessories. They are not losing much, if anything, from the software business going digital. And because Apple have a hugely successful retail chain of their own. They have no need to increase price. Also, at least for now, Apple is using software to drive hardware sales, not the other way around.

Where does DSi fit in all this? I'm not quite sure. I don't know if DSi can really disrupt Apple since the Apple strategy seems to be so closely knit together: iPhone + iTunes + Macs + OS X + Apple Stores. I could be wrong, but I don't doubt the ability of Apple to respond to any threat they perceive. The biggest threat, of course, is the one they don't perceive, and the DSi might fit in there. If you, dib8rman, or anybody else for that matter, have a better understanding of how Nintendo plans to use the DSi to disrupt Apple, I'm all ears.

No, consoles can't be replaced by portables. Consoles are about social gamming in the living room. That's why almost every game requires split screen co op of some sort. That social experience can't happen on portables or on pcs. Only a comparable gamming console can replace it but even Apple cannot fight Sony Microsoft and Nintendo on that turf. Not with there cheesy mobile games. Ip's like mario,zelda ,wii fit, halo, and GT garantee that they are here to stay. Its the mobiles that are up for grabs but there all different. I-phone is hurt because they are exclusive to At&t but windows mobile can invade any carrier with any third party manufacturer. Nintendo has grade A branding on par with disney. The PSP is probably dead. I don't see their hook. Their technology is dated, games aren't that good, games don't sell, and hardware is declining.

Iwata -"When I look carefully at the iPhone's users vs. the users of our Nintendo DS, I understand there are some overlaps," remarked Iwata-san, cool as a cucumber. "And if you ask 'Is the overlap too big?,' my answer is no, not so much."

In that quote Iwata acknowledges that the Iseries shares traits similar to the DS however the DSi is where I see the disruptive qualities of DSi.


Nintendo’s strategy is not accidental. CEO Satoru Iwata said “Some people put their money on the screen, but we decided to spend ours on the gaming experience. It’s an investment … not simply to improve the market—but to disrupt it.”

This was as of 2005 and Nintendo’s goal to always disrupt, DS doesn’t represent that 2005 quote for obvious reasons but DSi does.

http://www.innosight.com/blog/categories/video-games.html

I would love to quote the entire thing but I’ll appreciate my white space.

Finally:

Iwata - “The definition for a new machine must be different. I want you to know that Nintendo is working on our next system and that system will create a gaming revolution. Internal development is underway.”

The intent is to be different by value to the iSeries and to all competitors for that matter, by taking over another market that isn’t part of what the competitors see was important.

The question that I ask is how large is the market that the DSi is supposed to reach, which is the same question that arose about motion controls and the philosophy behind Wii.

Iwata sees the overlap, and Nintendo’s goal is to be different now, but in being different they intend to dominate. That goes for most businesses.

As for the whole Digital Distribution, GDC should of been the first sign of a formation on the Nintendo front, maybe the fog of war is still hiding their troops.

Thanks for the post, though I got a bit confused with the timeline of things. It's not really important, though, the important thing is of course the strategy that Nintendo is following. The real question in my mind is: to which extent Nintendo and Apple are on the same market(s), and to which extent is it possible for Nintendo to disrupt that/those market(s)?

Apple is coming from the computer and MP3 player markets, Nintendo is coming from home console and handheld console markets. Apple is venturing into the mobile phone market and mobile gaming market, Nintendo is going where? That is a genuine question, because I hate to admit it but I haven't been keeping close enough tabs on what Nintendo is up to. My understanding is that the DSi has added some multimedia capabilities to the mix, but I don't know if the intention is to disrupt the MP3 player market? If so, I think that's going to be extremely challenging because I don't think that market has generally been overshot, there are products for all levels. So, is Nintendo targeting the mobile phone market? That seems even more far fetched, and that market is also similarily not generally overshot.

One market that you might consider as overshot is surprisingly the computer market: most people do not need most of the things modern computers have and can do. If Nintendo is targeting that market, and there is some evidence along those lines in Wii, then it might have a chance to make a much bigger disruption on the market than it has ever experienced. Incidentally, that might be where also Apple is aiming with the iPhone and iPod Touch. However, the quotes you provided only talk about gaming and disrupting the gaming market. So I don't know what Apple should be afraid of regarding Nintendo.

Right, that’s because Nintendo is a games company. I’m not saying they are moving into the mp3 player space because they aren’t all their efforts are designed to push game play in fresh and innovative ways. The disruption on the iseries, would be similar to what is seen with the PS360 vs Wii, except it would be PSP3 Itouch vs DSi.
The thing is they seem to be using an existing product and testing out disruptive elements, it’s a safe way to do it.
But the overshot computer space most likely isn’t where Nintendo is going, I’d say they want to bring gaming into the family scene and the office scene.
The indirect implication of that on Itouch is that after the current gaming market is consumed there won’t be much else but a shrink or direct competition from that point.

I don’t have much time so I’ll explain a little better tomorrow.

Ok, I'll wait for further explanations tomorrow. Right now, however, I don't see Apple really pushing into gaming, although they do advertise the iPhone and iPod Touch gaming aspects. I see it more as Apple creating a platform, and letting the developers make do with it. A lot of the developers have made games, and that has lead to the platform being considered at least a somewhat serious contender in the mobile gaming space. Apple, however, is not really competing in this space with either hardware or software, the platform is not designed as a gaming platform unlike the DS and DSi and all other Nintendo consoles and handhelds. Therefore I see the role of Apple as a disruptor of the gaming business model, but not gaming itself. And if you contrast the majority of games on the iPhone and iPod Touch to the Nintendo lineup, it is quite clear that the quality is, for the most part, just not there.

But that raises an interesting question: are we sure that the gaming industry is not overshooting on what the nongaming public wants? Is it possible that even Nintendo is overshooting a big portion of the expanded audience that they try to reach? Quite ironically, most iPhone games are crappy products sold at a cheap price, to a market that is not really lucrative for the big gaming industry, i.e. crappy products for crappy customers.