Nintendo's Game May Be Over
Marcella Bernhard, Forbes.com, 04.02.01, 4:25 PM ET
NEW YORK - Kids may love Zelda and Mario, but that won't be enough to keep Nintendo out of last place in a three-way battle to dominate the $6.5 billion videogame market. Though Nintendo is sure to remain the videogame maker of choice for the elementary school set, Microsoft and Sony will split the spoils from the growing--and more lucrative--population of adult gamers.
The battle between Nintendo, Sony (nyse: SNE - news - people) and Microsoft (nasdaq: MSFT - news - people) for this market will come to a head as each company begins to push new products this year. In June, Nintendo will unveil Game Boy Advance, an upgraded portable game player, and in May the company will push a new console called GameCube to take on the consoles from Sony and Microsoft. A production glitch hurt Sony's holiday sales of the PlayStation consoles last year, so expect the company to push for a big recovery this December. Microsoft, meanwhile, is pouring $500 million into the promotion of its Xbox console which is scheduled for release this fall.
In the face of the Microsoft marketing machine and Sony's PlayStation*, the most popular game console ever made, Nintendo's options are limited.
Nintendo's got kid appeal with the lock that Game Boy has on the $1.5 billion portable game market. But Nintendo risks confusing customers with its influx of new products. Fans are sure to flock to the portable Game Boy Advance, but the new product will hurt sales of the old Game Boy. And Nintendo is venturing into risky territory with GameCube, which will likely be mauled by the stylish PlayStation 2 and Xbox. The games developed for** Sony and Microsoft have more sophisticated graphics and themes, and appeal to a growing market of late-teen and adult videogame players.
"Nintendo is a quiet, stealthy company with very high-quality products and a very shrewd business sense. But they are not going to be the 80% market leader anymore," says Andy Eddy, an editor for ieMagazine, formerly known as Game Week.
Few are taking bets, however, on whether Sony or Microsoft will win a one-on-one fight. Sony lost some of its valuable lead in its fall 2000 PlayStation 2 release when a chip shortage forced the company to cut U.S. shipments of the machine in half--500,000 units instead of one million--for the 2000 holiday season. That goof caused Sony to slash its 2001 profit outlook in its videogame business unit to $42 million, from $80 million.
"Microsoft really has the technology on their side," says Schelley Olhava, an analyst at market research firm IDC in Mountain View, Calif. Microsoft's Bill Gates started the public relations blitz last week, announcing that Sega will develop 11 games for Xbox. Few were surprised by the news; after all, Sega's making software for Nintendo and Sony as well.
Software can make or break any videogame system and, up until now, the hyped-up Xbox didn't seem to have any impressive games in the works. Now it does. Sega, the company responsible for the popular Sonic the Hedgehog character, will develop likely Xbox hits such as the driving game, "Sega GT2;" the adventure game, "Panzer Dragoon;" and the action game, "Gunvalkyrie." Though Microsoft is proudly showing off its Xbox hardware, it's the software that really makes all the difference in determining how popular a system is and how much it sells.
Gates also announced plans to develop a high-speed DSL (digital subscriber line) gaming network with Japan's NTT Communications, giving Xbox users the ability to play against competitors online. Sony's PlayStation 2 also offers this feature, but users have to buy a separate adapter for their consoles and jump through a few other technical hoops. Xbox requires no additional parts for online play.
But as Microsoft knows all too well, in the world of technology it isn't always the superior product that corners the market.
*An earlier version of this story incorrectly stated that PlayStation 2 was the most popular.
**An earlier version mistakenly referred to games as consoles.
