Analyzing the Nintendo Switch After One Year: Nintendo Labo

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As we have mentioned in past posts, Nintendo is a Japanese toy company that also happens to make video games. No product better describes this reality than the new Nintendo Labo. The Labo was a surprise announcement in January of this year, for launch in April. Labo officially launched in the United States and Japan on April 20, 2018. This will be followed by a Europe launch on April 27th. Labo clearly looks to be a hit in Japan, but the fairly-muted reaction to the product outside its home country indicates a bigger challenge for Nintendo.

The main issue Nintendo faces is that they have a large audience of loyal Nintendo fans that love their product. They have a second level of consumers that will buy certain Nintendo products if they see the quality is there. The problem is that neither of these audiences are growing a great deal, which limits Nintendo’s overall market potential.

DFC has done several studies and reports on the Nintendo audience that have allowed us to accurately forecast product sales over the past decade. Based on our analysis, the Switch falls in the category of being a great product for the loyal Nintendo audience, and a potential purchase for many consumers that already own a PlayStation 4 or Xbox One. This means lifetime sales of the Switch will probably peak around 70 million units, significantly below the Wii, which reached over 100 million.

The Nintendo Labo is clearly designed to appeal to children that are current owners of the Switch. This can be a great money maker for Nintendo, but it does not do much to expand the Switch installed base. Labo is also the type of product that seems designed first for Japan. Pre-orders in Japan were very strong. In the U.S., the day before launch the Amazon Best Seller page showed the Nintendo Labo Variety Kit at number 7 in video games, with the Robot Kit way down at number 35. Most importantly, it trailed behind the PlayStation 4 exclusive God of War 4, releasing the same day. Note, this does not include the hot digital products like Fortnite that often fly under the radar.

Unlike Nintendo Labo, God of War 4 is the type of exclusive that could make a significant number of consumers run out and buy the hardware (ie a PS4). An example of the gushing views for God of War 4 can be found at CNET. CNET’s headline read“The PlayStation 4 has a new masterpiece, we don’t deserve this game”

All the average game consumer needs to do is read the first paragraph of the CNET review and they will likely to be ready to rush to place their order:

“God of War is on a different level. The game — which hits on April 20 — is an incredibly impressive and fully realized experience unmatched by anything I’ve played in recent memory. It’s scary good. And it’s only on PS4. Sorry, Xbox and Switch owners.

What it accomplishes is genuinely staggering. Its production value is off the charts. The set pieces, environments — the scale of it all — completely resets the bar when it comes to technical prowess in the console gaming discussion.”
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CNET Review April 19, 2018

Make no mistake, Nintendo fans are into the Labo. It is just the reaction has been a little more muted. Surprisingly, the hype was greater when the Labo was announced in January then it was on release in April. This goes to the fact that Labo is a fairly narrowly targeted product that doesn’t seem to fit into the normal Nintendo marketing channel.

Once again, the CNET review gets at it nicely with a headline entitled “the weirdest kind of fun.”

The first paragraph of the CNET review seems unlikely to get people rushing to buy the Labo.

“Labo may be Nintendo’s weirdest idea in video games ever. And that’s saying something. This is the company that created some of the most offbeat gaming concepts in history, from wildly interesting flops like 1995’s Virtual Boy to megasuccesses like the Nintendo Wii.

Mixing papercraft, brilliant designs and a bit of programming, Nintendo Labo feels like a weird cardboard fantasy dream.”

CNET Review April 19, 2018

This is nice 4 out of 5-star review based on the reviewer’s perception of his two young kids, primarily his 9-year old. Clearly the main issue is that unless you are a kid under the age of 12 it seems the Labo has limited appeal or is just weird. Most other reviews talked about the Labo from a kids perspective, for example:

• A pricey but extremely entertaining crafting project for kids (Financial Post)
• Nintendo Labo is far more than just cardboard decoration, it’s the frontier of educational gaming (Alphr.com)
• Nintendo Labo gets high reviews from an 11-year-old. But his smartphone still won out. (USA Today)

Basically, the reviews, mostly from a non-gamer audience, use words like “fun, but weird,” or “entertaining but expensive,” and possibly the worst praise of all “educational.”

The beauty of many Nintendo products is that they can sell right into the targeted fan base without much need for marketing on Nintendo’s part. Japan creates a product and ships it to North America, Europe and the rest of the world for distribution to retailers. The concern with a product like Labo is the cooling off between announcement and launch shows that there may need to be more push marketing on the part of Nintendo of America and Nintendo of Europe (Europe sales are not expected to be nearly as strong).

On the downside, as a Japanese company, Nintendo tends to miss out on many current trends among its international audience. Remember, it was Microsoft, not Nintendo, that bought Minecraft. Meanwhile, as Nintendo Labo launches, the biggest explosion among the 10 to 13 demographic is Fortnite. Right now, outside Japan, Nintendo is clearly losing that battle.

Overall, we have had some concerns in recent months about whether Nintendo can meet our forecasts after a stellar 2017. Labo is an innovative product, but if anything, Nintendo’s handling of it is making us feel a little more uncertain. Instead of going all-in on this product the company seems to be taking a cautious approach. It is almost as Nintendo itself views the Labo as more of a short-term fad than a revolution in interactive toys.

Of course, we have been closely following Nintendo stock which has been down about 10% in the month leading up to the launch of the Labo. Overall, we think if Nintendo wants to build any momentum going into the second half of 2018 they will need a strong E3 showing to build continued interest in the Switch platform.

Nintendo Labo

For more information on our latest Nintendo brief go here. For full detail on recent DFC forecasts go here or contact us directly.

For info on the latest DFC Intelligence survey of U.S. console gamers go here.

Nintendo Switch Forecasts

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