Tempus: Reinventing the Wii
Nintendo's first-quarter net profits have soared five-fold as it aims its Wii products to a widfer audience
Putting differing accounting standards aside for a moment, last year Nintendo was more profitable per employee than Google. With Nintendo's profits soaring fivefold in the first quarter, to ¥80.25 billion (£326 million), and Google adding employees at a rate of knots, the gap might just widen this year.
The comparison shines a light on a part of Nintendo's success story that has perhaps so far been overshadowed by its mission to snare unlikely new gamers — older people and women — through snappy hardware and unusual games. Nintendo, it turns out, is a remarkably lean and thifty shop in an industry that has become renowned for flabby largesse.
For years, manufacturers have developed and sold consoles as loss leaders in order to profit from larger margins on software later. In that tradition, Sony committed itself, at a cost of hundreds of millions of dollars, to co-developing the PlayStation 3's powerful Cell processor from scratch. The engineers were let off the leash. Indeed, one rumour says that Howard Stringer, the Sony chief executive, was unaware of the cost of the PS3 until the last minute.
By contrast, for the Wii, Nintendo bought a much cheaper central processor off the shelf. The key chips that go into the now-famous “Wiimote” cost about £1.25 apiece. Again, they were bought in from outside.
The result: Nintendo is making a profit on every Wii sold — something in the region of $20 to $30 seems to be a fair guess. Sony, meanwhile, is losing as much as $200 on every PS3.
The cost differentials spill into software: developers can make as many as four Wii titles for the same price as one PS3 game, says one estimate. If Nintendo continues to command the attention of third-party developers in the way it is at the moment, the resulting library of games can only reinforce the appeal of its hardware — in turn creating a market for its own software.
Yes, the Wii could yet have a far shorter lifespan than the PS3. But the real fear for Sony is that Nintendo is not only reinventing gameplay with cute controllers, but that it is mangling the accepted economics of its industry.
Putting differing accounting standards aside for a moment, last year Nintendo was more profitable per employee than Google. With Nintendo's profits soaring fivefold in the first quarter, to ¥80.25 billion (£326 million), and Google adding employees at a rate of knots, the gap might just widen this year.
The comparison shines a light on a part of Nintendo's success story that has perhaps so far been overshadowed by its mission to snare unlikely new gamers — older people and women — through snappy hardware and unusual games. Nintendo, it turns out, is a remarkably lean and thifty shop in an industry that has become renowned for flabby largesse.
For years, manufacturers have developed and sold consoles as loss leaders in order to profit from larger margins on software later. In that tradition, Sony committed itself, at a cost of hundreds of millions of dollars, to co-developing the PlayStation 3's powerful Cell processor from scratch. The engineers were let off the leash. Indeed, one rumour says that Howard Stringer, the Sony chief executive, was unaware of the cost of the PS3 until the last minute.
By contrast, for the Wii, Nintendo bought a much cheaper central processor off the shelf. The key chips that go into the now-famous “Wiimote” cost about £1.25 apiece. Again, they were bought in from outside.
The result: Nintendo is making a profit on every Wii sold — something in the region of $20 to $30 seems to be a fair guess. Sony, meanwhile, is losing as much as $200 on every PS3.
The cost differentials spill into software: developers can make as many as four Wii titles for the same price as one PS3 game, says one estimate. If Nintendo continues to command the attention of third-party developers in the way it is at the moment, the resulting library of games can only reinforce the appeal of its hardware — in turn creating a market for its own software.
Yes, the Wii could yet have a far shorter lifespan than the PS3. But the real fear for Sony is that Nintendo is not only reinventing gameplay with cute controllers, but that it is mangling the accepted economics of its industry.
posted by auto at 9:54 AM
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