Squilliam said:

Funny how Malstrom dismisses Apples rise to be the fourth big gaming power in the industry.

iOS style devices already have disruptive potential. They cater to the low end of the gaming demographic, they have a unique distribution model which Nintendo cannot compete with given the differing nature of their respective businesses and they are becoming more important. Last year the iOS gaming revenue exceeded the PSP gaming revenue and that growth YOY is likely to be significant enough to make Apple the clear number two handheld gaming company. The 3DS in many ways can also be seen as a retreat up market against the rise of the iOS devices because it caters more towards the core of the handheld userbase.

1. I didn't claim that had anything to do with this.

2. Okay, disruption is not just a move from one side. It's also leaving room for the other to disrupt. If you don't leave room, you can stop the disruption. Malstrom mentioned that Microsoft used smart tactics with laptops to prevent netbooks from disrupting them. So Sony left room for disruption with all the PSP mistakes (and PS3, assuming you mean Apple made more money than Sony's gaming division). Nintendo is moving foreward with their next handheld, but more importantly, they are focusing on games that will sell this handheld.

Apple's devices are widespread, so by virtue of volume, their revenue is a lot. But they will need some major killer apps to truly make a great handheld gaming device. That could happen, but because Nintendo has their killer apps once again (or always had them with their handhelds), disrupting them is unlikely. Apple at best would make their own handheld market. They don't need to disrupt Nintendo. This is actually what Malstrom's latest post is about. Competition in gaming need not be Zero Sum. You can make your own market without taking on the competion directly.

Apple already have some major strengths but they aren't all games. They have the ability to distribute a device with similar margins to a console which has a digital distribution network. This is significantly cheaper and more practical for developers and publishers than creating expensive cartridges. This means than Nintendo cannot compete against Apple for the lower end of the market, hence disruption. They have completely different business models which has caused Nintendo to retreat upwards in the market towards the core (3DS). Nintendo can't sell $5 games but Apple can sell $15-30 games, hence the asynchronous nature of their competition. The difference here is that Apple at this point in time appears to be uninterested in following Nintendo towards the upmarket.

He did address that issue: "Remember when Jobs bragged how a game for the iPhone or iPod Touch was considerably cheaper than a DS game? Attacking from the bottom end, not the top end, is disruptive. Nintendo responded by allowing cheap games to be bought on the DSi".

First of all, that's US only, the weakest PSP software market while the strongest for iOS. Worldwide PSP is likely still number two though not far ahead. Second, I doubt Flurry Analytics methodology, whose review you're obviously referring to, I'm not sure how they differ general apps from gaming apps. Though claimed $500M in gaming revenue for iOS in 2009 is believable, it's upper limit among other analytics estimations. Third, mobile gaming in general is already generating roughly equal revenue to DS and PSP combined, back in 2009 they did $5.2B each. The assumption that revenue growth (or even more absurd - userbase growth) of non-dedicated gaming device will automatically harm dedicated devices is off base. Malstrom is right when he compared iOS to PCs, situations are quite similar. Wii, X360 and PS3 combined generated $19.2B in revenue last year, while PC made $13.1B and growing at faster pace just like mobile gaming. Furthermore, as well as mobile gaming PC gaming market is based mostly on low-end businesss models, so it's safe to assume that average PC gamer spends quite less on games than his console counterpart.

Furthermore mobile gaming growth was steady for quite a while now, prior to AppStore launch revenue was $3B/year. If mobile gaming growth is in fact eating up into handheld gaming as people say, it would have harmed DS long time ago, but last time I checked market growth was persistent on both sides. It doesn't mean, of course, the situation may not change in the future, since AppStore was a big deal in mobile gaming, because it created a stable and lucrative for developers business model to monetize their efforts. It's especially popular among smallest devs. That's why DSWare was created, but it's defensive move, so don't expect Nintendo to offer devkits cheaply. To become official Nintendo dev you need $2000 compared to merely $100 for iOS dev. So probably single persons and smallest teams will be filtered out, but teams that big enough to pay a rent for room in office building are likely to consider going all the way multiplat iOS/DSWare, which is good enough for Nintendo (unless 3DS flops completely, of course). As you've mentioned due nature of business Nintendo isn't interested and in fact just can't compete on lower levels, but they're quite serious to defend mid- and upper-range of portable gaming market even if mobile gaming in general far outpace them in revenue (and that's possible scenario as well for PCs and home consoles considering growth rates).

Lower end is not automatically disruption (inexpensive MP3 players are a strong market, but not disrupting the iPod). That is using the lower end to reach a wider market. The device reaching a wider market is not the same as the games doing so.

And assuming that the 3DS is retreating? Have you forgotten that the DS is six years old, and that the tech for a more powerful system being affordable is the reason? You think the iProducts getting more powerful is retreating upmarket? Your logic says so.

The 3DS is Nintendo trying to do the virtual boy correctly. There is no retreating about that.

Squilliam said:

1) Actually both handhelds are down significantly in 2010 compared to 2009 in terms of overall software and my figures were based off an NPD report. 2) Also a larger proportion of Apple software and hardware revenue comes from outside of the U.S. than ever before. I believe it is well over 50% for the iOS devices. 3) So it also follows that Apple and their competitors as well like for instance Android are gaining significant ground on Europe and Asia.

The reason why inexpensive MP3 players do not disrupt the iPod is because price is not the only reason why people choose a product. If that was the case then Apple would not maintain both good margins and >50% market share as a single player.

The reason why the 3DS is a retreating design is that it is a design which focuses on aspects of the experience which a phone cannot recreate. They developed a 3D screen which is something that cannot easily be emulated for the time being on a phone and they created a device which is more favourable to the core gamer market. The performance has nothing to do with the market positioning of a replacement handheld. The presence of so many announced core titles is further proof of this shift. Nintendo are focusing on the people whom are likely to continue to pay $30 for a cartridge.

Actually both handhelds are down significantly in 2010 compared to 2009 in terms of overall software and my figures were based off an NPD report. Also a larger proportion of Apple software and hardware revenue comes from outside of the U.S. than ever before. I believe it is well over 50% for the iOS devices. So it also follows that Apple and their competitors as well like for instance Android are gaining significant ground on Europe and Asia.