Nintendo Mobile Gamble Might Kill 3DS, Save The Company

Nintendo launched a new hand-held game console, the Nintendo 3DS XL, just last month, and today the maker of Super Mario and Zelda announced a move that will probably kill that brand-new console. It is a daring lesson for CIOs on the importance of not making anything sacred.

Today, Nintendo and DeNA announced a new mobile gaming partnership that includes the creation of smartphone- and tablet-based games featuring the large stable of well-known characters at Nintendo's disposal. It also includes a new mobile gaming platform that will connect to existing Nintendo hardware, and a stock purchase agreement.

In many eyes, (including mine) this move is long overdue. Nintendo is not only one of the "big three" gaming hardware makers out there, but it is also one of the top game developers in the world. No game developer can afford anymore to ignore mobile gaming. The revenue in mobile gaming was forecast to double from 2013 to 2017, going from $17.5 billion to over $35 billion, according to NewZoo and Applift. NewZoo also expects mobile gaming to pass console games this year, with more than $30 billion in revenue.

Nintendo's choice to favor its handheld console over phone and tablet gaming was costing the company. Despite successful launches of games like Mario Kart 8, Nintendo still posted a loss of $456 million last year (its third straight losing year). The 3DS XL had an extremely successful launch in February and sold over 300,000 units. The company has sold nearly 50 million units in the 3DS series, and it sold 153 million in the original DS series. That sounds like a lot until you compare it to the nearly 2 billion smartphones on the planet. By 2018, one third of the people on the planet will have one of those. Asking people to buy a different device to play games is no longer feasible.

We're likely seeing the last generation of separate console games. Console gaming is fast becoming a cloud-based industry, with both the PS4 and Xbox One relying partially on the cloud for some of the heavy lifting. The need for discs and big boxes is going away. The next generation of consoles may very well consist of a joystick, a smart TV, and a small streaming stick. That's why the DeNA platform is extremely important to this agreement. Nintendo needs to reach gamers across platforms regardless of what they're playing on. While it has struggled in the console industry lately (excluding handhelds), Nintendo still makes some of the best games around. So Nintendo might be most uniquely suited for the next generation of console-less gaming.

Of course, the leap to mobile gaming still marks a major risk for Nintendo. The 3DS is essentially what is keeping Nintendo going right now. As of last year, the Wii U had sold around 6 million units compared to over 100 million of the previous generation console, the Wii. All of the combined software sales for the Wii U are less than some of the most popular titles for the original Wii. The newest Zelda game for the 3DS, however, was the number one selling game in February.

Nintendo describes this move as "complementing" the 3DS platform, and the company notes it will only create new games for mobile -- using any of Nintendo's character lineup -- rather than port existing 3DS or Wii U games to the phone. But eventually its leaders face a choice: They can try to get people to buy a 3DS and play different games on mobile, then hope people find both worth their time and money, or they can eventually admit that the phone is an equally good gaming platform and abandon the 3DS family. But you would assume that eventually Nintendo has to count on those 2 billion smartphone owners liking their games more than their consoles. We reached out to Nintendo for comment but have not yet heard back.

It is a tough, but great, call for Nintendo leaders to risk their best-selling system to grab gold in mobile gaming. It is a lesson to any business leader that sometimes the writing is on the business wall, and you need to kill your business darlings. Essentially, the future of Nintendo might be as software developer and game designer (and platform host) rather than hardware maker. That is just fine assuming it can make the leap.

To explore how the company might make the leap, we'll post an article soon on mobile games Nintendo should start with. In the meantime, what do you think of Nintendo's risk? Does it seem sound, and as a business leader, would you be willing to take such a huge risk with your best product? Comment here.