Nintendo hints at mystery device to turn around its fortunes
Will an as yet unrevealed mystery device be the key to Nintendo turning around its sinking fortunes?
After saying in January that it would report its third consecutive annual operating loss, the company surprised analysts and investors by disclosing that it plans to focus on nonwearable health monitors as part of a new 10-year strategy.
Nintendo's global president, Satoru Iwata, has discussed his interest in the fitness market and in taking the company in unexpected directions, both in public and in regular meetings with CNBC.com over the years. But the announcement, on Jan. 30, still left many investors confused.
What, exactly, does Nintendo have planned? Iwata isn't saying much—though he promised to reveal more details later this year. The company has said it plans to launch the product in the fiscal year ending in March 2016 (suggesting a possible holiday 2015 debut). Also, the venture is independent from its core games business.
Nintendo did imply there will be some tie-ins between the two units, though, as plans are underway to build a "flagship title" to show off the new platform. And it will revolve around increasing quality of life through entertainment.
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Nintendo is "considering themes that we have not incorporated to games for our existing platforms," Iwata said. "Our new business domain would be providing preventive measures which would require us to enable people to monitor their health and offer them appropriate propositions."
Analysts' reactions were mixed. Some say it could help in turning around the company's finances, but no one thinks it's a miracle cure-all.
"It seems pretty interesting to me if they can turn this into a 'next generation Wii Fit,' " says Colin Sebastian of Robert W. Baird. "They're still in a difficult spot, though. I appreciate the fact they're looking at areas that may not be as explored by Sony and Microsoft, but I think the company itself still seems to be stuck in a position of not determining who it wants to be long term."
Others aren't so diplomatic.
"I don't think it will ever see the light of day," says Michael Pachter of Wedbush Securities. "It's not going to have any impact."
Neither would speculate on what the product might be.
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We do know what the product won't be, though: it won't be anything like the Fitbit or other popular health monitors. And it doesn't seem to have anything to do with the Wii Vitality Sensor, an ambitious project the company introduced in 2009, only to later abandon as it couldn't get the technology to work to its standards.
Iwata was the internal champion of that device, which tracked a user's pulse and stress levels through light pulses in the finger. One possible gaming application he showed off privately in 2009 had the sensor helping train users how to breath in a more rhythmic fashion.
But just because the Vitality Sensor is dead doesn't mean some of the ideas behind it won't work their way into this new product.
"There have got to be a [significant] number of people under stress who really want to release that stress, but those people are always running out of time," Iwata said in 2009. "I think everyone in this room has experienced [the situation where] you are tired and want to go to bed, but can't because your brain is tied up."
Pachter, though, said that the announcement is just a way to resurrect Wii Vitality Sensor tech.
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"This is a great example of Nintendo having a formula and not deviating from it no matter what. The formula was: 'We tried the Wii Vitality Sensor and it didn't work and we canceled it. But let's not scrap all that work.' ... I think [Iwata] is hoping not to lose all that sunk cost in it and wants to exploit it."
Fitness has meant big money for Nintendo in the past, so it makes sense that it's chosen to pursue it further. The Wii was praised for getting gamers off of the couch—and the Wii Fit franchise has sold more than 43 million units life-to-date.
As it did with the Wii and hand-held Nintendo DS system, Nintendo is relying on its "blue ocean" strategy—which boils down to avoiding a feeding frenzy for a small customer base (aka a "red ocean") when there's a much larger, untapped one available (the aforementioned "blue ocean").
Moving into an unproven space like "nonwearable" fitness tech might sound crazy now, but in Iwata's mind, it beats following the pack.
"Once a blue ocean has established the status of a new marketplace, eventually the blue ocean turns red," Iwata said in 2009. "We have the greater potential to create the blue ocean market when people are skeptical. So when we realize that other people are coming into [a] market ... there are two things we [can] do. One is trying to intensify the fun nature of something we are already doing. The other is try to create a new blue ocean."
"Even if it is revolutionary, sooner of later people become tired of a new form of entertainment," Iwata noted in 2008. "This happens faster when others try to reproduce what was fresh. For all of us in the video game industry, there is danger in standing still. We must find more ways for players to become engaged, even with interactions we would not call games."
And while fitness tech is the rage now (and arguably, is a current blue ocean), Nintendo's product is likely two or more years out. A lot can change in that time, given the fickle nature of consumers.
—By Chris Morris, Special to CNBC.com.