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Is Nintendo dying? Will Nintendo ever cease to be a video game company? Some of the business practices that Nintendo has historically leveraged to maintain market dominance (most questionable, the use of artificial scarcity) may not be feasible in the future. But will this infeasibility be enough to bring Nintendo down?

What are your thoughts?

Transcript(ish)

Hey Future Caleb, look, I’m certain you’re getting tired of hearing questions from Present Caleb. Even Present Caleb gets tired of hearing questions from Present Caleb.

So to alleviate the ear burdens of future Caleb, I took to Twitter–the social media platform that maintained micro-status dominance until 2054 when it was replaced by the emoji-only micro-micro status social media platform, Twit.

I got a lot of great questions to ask Future Caleb, but I’ll focus on one in particular this week as it coincides with something I’ve been wondering for a long time: Hey Future Caleb, is Nintendo dead yet?

All good things must come to an end, I get that, but let’s remember that Nintendo has been a company since 1889, long before arcades existed, let alone before jumping over barrels was a legitimate occupation. In the 1980s plumbers moonlit as barrel jumpers. It’s like how English barbers, until the mid-16th century, not only cut hair but also cut open veins as part of the medical practice of bloodletting. Eventually, barbers focused on hair and surgeons focused on surgery, just like eventually rodeo clowns would focus on jumping over barrels and plumbers would be allowed to focus on real plumber stuff: stomping on turtles, breaking bricks in search of money, riding dinosaurs, and throwing fire at sentient mushrooms.

Nintendo has proven itself immovable to the cultural whims and mismanagement that lesser companies are suspect to. Here in 2017 it seems Nintendo is invincible. But will the sped-up background music ever slow down for this mighty beast…because when you get an invincibility star in Super Mario Bros. the music speeds up…but then it returns to normal and you aren’t invisible anymore.

Nintendo began life as playing card manufacturer and didn’t start exploring the world of global toy manufacturing until the mid-1950s. Not long after, Nintendo of America was formed, laying the foundation for what is still the world’s most recognized video game company. But, Future Caleb, is this still the case in 2078 where, I assume, video gamers have forgotten Mario, Nintendo’s Italian plumber in favor of Crunkle, the cheese-throwing anthropomorphic bowl of damp oatmeal and mascot of the now dominate Ataribox console.

If Nintendo is going to die, what would bring it down. From a business perspective, the company operates extremely lean. Data from 1992 indicates that Nintendo was perhaps Japan’s most profitable company at the time, netting over $1 billion in gross profit annually, which amounts to–and this is why I include this stat–$1.5 million per employee in Japan. That’s insane. I understand the data is old but considering the Nintendo Switch, released here in 2017, is the fastest selling console in the US market ever, Nintendo is still doing something right.

But what exactly are they doing right? Here’s where we start to explore VGCollectaholic’s tweet. Nintendo of America has always adhered to a respectable philosophy of “quality over quantity.” Most companies in the 1980s with a burgeoning crew of universally recognized mascots would have favored a quick-buck over almost anything. Licensing characters for movie deals, theme park attractions, and allowing other developers to run with their IPs are common practices for toy makers. So while Nintendo wouldn’t have been looked down upon for doing these things, they refused because it opened their brand up to cultural liability. Basically, for every quickly-satisfied existing fan they risked the quality that would allow a steady stream of new fans over the long-term.

The great book “Console Wars: Sega, Nintendo, and the Battle that Defined a Generation” by Blake J. Harris outlines three specific tactics Nintendo of America took early on to guard against impurity.

  1. The Nintendo Seal of Quality, which is an indication that Nintendo has vetted the manufacturing and distribution of the product. It doesn’t really speak to the quality of the game, necessarily. Quality control was meant to be addressed by number 2 on our list:
  2. Nintendo restricted the number of games a third-party licensor could make each year and also forced game makers to buy parts directly from Nintendo. The logic being that if game developers could only make 3 games per year, they’d have to make those games really, really good in order to stay in business.
  3. And this is the most contentious. Nintendo devised a rigid distribution strategy that intentionally provided retailers with only a fraction of the products they requested. The goal of this technique, according to Console Wars, was two-fold: to create a frenzy for whatever products were available, and to protect overager industry players from themselves.

Nintendo’s practice of artificial scarcity isn’t just a conspiracy theory. It’s a documented business move.

Now, I believe that artificial scarcity is good for the player long term in some ways. While I don’t appreciate the frenzy aspect, I do understand a focus on basic supply and demand is important for the long-term health of a company, and without Nintendo as a company we wouldn’t continue having great games.

But, is this system of inventory management feasible in 2017, a time with internet scalpers that make Nintendo look bad and increased competition that make Nintendo look weak? And are these systems feasible in 2078, a time with internet scalper scalpers, people who pawn the cut skin from the heads of internet scalpers on eBay. Not a dystopian version of eBay. Just regular eBay. EBay had to change its platform a bit as the society it serves changed. Earrings made out of human ears got so popular in 2064 that ebay was forced to open its platform to human limb trade. Nobody saw that trend coming. Except, perhaps ironically, the people who just the year prior sold their eyeballs to those same earring manufacturers when those manufacturers were prototyping their body part jewelry business. It was the only thing they were able to see coming. Because they didn’t have eyeballs.

Some say there’s evidence of this inventory management practice already dying. Despite the abysmally low number of shipped units for the NES Classic Edition, which came out late 2016 and is an NES Classic case of artificial scarcity, Forbes has surmised that when Nintendo air-shipped additional Switch units in March of 2017 to meet demand–a move that would cost much more than standard ground-shipping–they were acting in complete contradiction to the tenants of artificial scarcity.

Perhaps this is true. Perhaps Nintendo is changing. If we consider that Nintendo has recently, for the first time ever, handed development of a Mario game to a major 3rd party, and that Nintendo has promised to increase production of the upcoming SNES Classic, and that a Nintendo theme park is underway, then perhaps Nintendo’s unforgiving grip is loosening.

But, will Nintendo ever completely stop practicing artificial scarcity? As long as the company is lead by savvy business people with a focus on quality, then no. They will always save manufacturing and marketing costs by shipping a low number of units with comically short cords, but they will never do anything to strangle themselves with said short cord. I mean, they couldn’t even if they wanted to. The cord is too short.

Current viewer, what do you think of Nintendo’s practice of artificial scarcity? Do you see this practice changing now or in the future? What do you think would cause Nintendo to die, if it ever were to?

Please like, subscribe, and click the bell notification icon to ensure you never miss a video. I try to upload once/week.

And to you Future Caleb, say hi to your grandkids for me.

Research/Sources/Credits/Inspirations (this is not a comprehensive list, as that would be impossible, especially the “inspirations” items)

The following are YouTube videos licensed under CC BY 3.0

Music Credits

  • 8bit Dungeon Level Kevin MacLeod (incompetech.com), Licensed under Creative Commons: By Attribution 3.0 License, http://creativecommons.org/licenses/by/3.0/

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