The Battle for Second Place: Microsoft vs Nintendo
October 21, 2003
Next week DFC Intelligence will release the results of our
most recent executive interviews. Every year since 1997, DFC has interviewed
leading figures in the game industry and published the results in our annual
Executive Interview white paper. For the 2003 report many topics were discussed
in detail. Hot issues included the general state of the industry, the costs of
development and marketing, which companies are likely to do well, which
companies are likely to struggle, the wireless and portable game market, online
gaming, console systems going online and the state of the PC game market.
Perhaps the most surprising issue that was raised in our
interviews dealt with the hardware console race between Sony, Microsoft and
Nintendo. Of course, this is always a hot topic. However, this year we were
not expecting such strong responses. Everyone knows Sony is number one and
Microsoft and Nintendo are fighting for a distant second place. True to form,
almost everyone had good things to say about Sony and the PlayStation 2
platform. What took us by surprise was the general attitude that Microsoft has
overtaken Nintendo as the number two player in the marketplace.
Nintendo has always been a problematic company for
third-party video game publishers. The major complaint is that Nintendo
platforms only make money for Nintendo, not anyone else. Despite that, Nintendo
has generally received a great deal of respect as a true industry leader. This
year it was different. The majority of respondents had extremely harsh words
for Nintendo. The general consensus seemed to be that Nintendo lacked
leadership and a clear strategy and was in danger of becoming a non-player in
the video game hardware race.
The attitude towards Nintendo is somewhat surprising
considering that the GameCube and Xbox are in a close race for second place.
With a major price advantage, the GameCube could easily outsell the Xbox this
holiday season. Nevertheless, in many respondents’ eyes, this may be too
little, too late. Nowadays, almost no one questioned whether Microsoft would be
around for the long term. Instead the main complaint about Microsoft was the
fear that they may become too powerful, possibly becoming the next Nintendo. In
other words, the fear about Microsoft is that they will follow the Nintendo
model and focus more on their own profits (as opposed to helping third party
publishers make money).
Once again it should be made clear that Sony was far and
away seen as the leading player. Most interviewees felt that Microsoft still
had a long way to go to be a true market leader. However, in many people’s
minds it seems Microsoft has already replaced Nintendo as the leading challenger
to Sony’s dominance. That was the biggest surprise.
The following quote perhaps best describes the general
consensus of the respondents to our survey.
“Sony continues to dominate and
will do so until the PS3 launch. Microsoft has done a credible job of
establishing themselves as a player. Nintendo has fallen off the radar and is
risking becoming a non-factor.”
Without any further editorial, the following quotes are
some of the unedited comments regarding the Microsoft Xbox and Nintendo GameCube
What the Interviewees Said: Microsoft Xbox
- Strengths: Strong technology, some good games finally
starting to show up. Weaknesses: Arrogant towards publishers, poor marketing,
- A weak second, but online may help.
- I think Microsoft is in this for the long haul.
- I am rather confident about Microsoft staying in this
for the long haul.
- Microsoft will stick with Xbox for at least one more
cycle. If Xbox 2 fails to deliver profits then there will be no Xbox 3. As a
result, I expect to see Microsoft engineer for cost savings more than
- There is tremendous weakness for the Xbox in the
Japanese market. This will be a huge long-term challenge for Microsoft.
- The Xbox has continued to show good consumer demand in
the U.S. and with the introduction of Xbox Live appears to be gaining
momentum. Microsoft ended the month of December 2002 with an installed base
of about 4.6 million units.
- Xbox will turn in a strong second place, but well behind
PlayStation2. Microsoft's fears over their costs wiping out any potential
profits will continue their trend of being penny wise and pound foolish.
Rather than spending to get exclusive content, lead the price wars or produce
any compelling marketing messages, they will continue to fall back on pushing
Xbox Live as their key differentiator to an audience that is largely
uninterested in online and unable to discern the benefits of Xbox Live over
Sony's online strategies.
- Microsoft has great technology but their emphasis has
always been on Microsoft. They need to do a little more to build third party
relationships. They also need more emphasis on games. They are not as bad as
Nintendo, but they seem to be awfully influenced by Nintendo’s model.
- Microsoft is very committed to making the Xbox a success
and so far has done a very good job marketing the Xbox.
- Will be a strong #2 in this generation.
- Microsoft continues to heavily promote Xbox Live with
game’s like Return to Castle Wolfenstein: Tides of War and its own upcoming
Halo 2. They are successfully making Xbox Live a premiere online gaming
- Still got headroom technically. Xbox Live
implementation and mod-chip blocking has proved very pro-active. However they
need to have their Xbox 2 ready to ship either before or with the PlayStation
3 to prevent history from repeating itself.
What the Interviewees Said: Nintendo GameCube
- Strengths: Nintendo brand and franchises. Weaknesses:
No "killer" games yet, confusing target audience, falling behind others.
- Coming in third, Nintendo seems helpless to decide WHAT
- Nintendo possibly will not stay in the hardware
- Nintendo does not have a clear vision and leadership.
Without the ability to clearly explain their vision they are destined for
- I think, and hope, Nintendo will stay around in the
- As of December 31, 2002, the GameCube had an installed
base of about 3.6 million units, slightly below our expectation.
- Although sales of the GameCube are lower than initially
expected, we believe that it is too early to assume that Nintendo will not
stay in the hardware business.
- GameCube will be pushed into a smaller and smaller niche
as third party publishers abandon the platform in droves (save for quick,
cheap ports) and Nintendo's own games fail to live up to the ever-increasing
expectations of its customers.
- There seems to be a belief that Nintendo has not really
followed the changing dynamics of the marketplace.
- There's no question that (Nintendo) SHOULD exit the
hardware business, but corporate arrogance, combined with the cautionary tale
that Sega's difficult transition to pure software publisher provides, may
cause them to ignore reason. I really don’t know if Nintendo will stay in the
- Nintendo is swimming in a sea of hardware inventory.
- Nintendo still has reasonable appeal in the Japanese
- Nintendo focused on their “colorful” market and kept it
well stocked with Mario and Zelda games, however Microsoft and Sony are
pushing them into a corner. Nintendo seem to be embracing third-party
development more and that should bring more interest outside Japan to their
- Will continue to do well, but I foresee a similar trend
as with the N64. Less and less third-party support, fewer really smashing
games, no online focus in this generation, and quite frankly they don’t have
to since it’s ample time to catch up from the next round if they are good
enough at making the next one right. A worldwide #3. Connectivity between
GBA and GameCube is not such a great thing for older players.
- As a consumer and a gamer someone needs to explain to me
how having synergy between the GBA and GameCube enhances the gaming
- Nintendo seems to be going down the N64 road again with
a slow decline (e.g. being thrown out of retail, having less and less third
party support etc.)
The new DFC Intelligence report, The Executive Interview
Series 2003 will be available at the end of October. Qualified, registered
media can receive a free copy by sending email to
email@example.com with the subject line DFC EIS 2003.
Click here to see a table of
contents for the new report. For more info go to
www.dfcint.com or call DFC Intelligence at 858-780-9680.
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A sample of recent reports on
the video game and PC game market include::
Worldwide Market Forecasts for the Video Game and Interactive
Entertainment Industry Released April 2003, this 500+ page report
contains complete forecasts for all individual console and portable game
platforms by region (Asia, Europe/PAL, U.S.) through 2007. Also included are PC
game forecasts and historical sales figures. The report has several scenarios
for future market growth including an analysis and forecasts for new systems
from Sony, Microsoft and Nintendo, as well as new portable game systems.
Leaders in the Video Game and Interactive Entertainment Industry This
600+ page report profiles major companies in the interactive entertainment
industry. Each individual company report is about 15-40 pages and has an
historical background, financial overview, product analysis and a frank
assessment of the outlook for that company.
The Online Game Market This 475 page report contains a comprehensive
analysis of the online gaming market. Includes current sales trends, market
forecast, and in-depth company profiles.
Other DFC reports include The Business of Video and
Computer Games, The State of Game Technology, The Video Game and
PC Game Consumer and The Executive Interview Series.