How will Nintendo monetise on mobile?
“My understanding of how to succeed in the Japanese market now is to find a limited number of generous consumers who are willing to spend a lot and analyze what encourages them to spend,” Iwata said. Nintendo, he said, doesn’t want this to be its modus operandi. Instead, he said, “the basis of our strategy will be how we can receive a small amount of money from a wide range of consumers.” Nintendo is going for “wide and small,” not “narrow and large,” he said, in a bid to make the games more enjoyable to more players.
This could mean Nintendo is aiming for free-to-play (F2P) games, hoping they can convince many people to spend on In-App Purchases (IAP) to unlock items in-game . However, as the article notes, F2P dynamics simply don't work that way:
It’s no exaggeration to say whales keep the whole business afloat [...] According to one 2014 study, about 0.15 percent of players accounted for 50 percent of a given game’s revenue.
The other option is that they're hoping to stick with their console business model: Selling games with an up-front cost (likely adjusted to <$5, in-line with the mobile market).
However, as I discussed in my previous article on Nintendo, the dynamics of mobile are very different. The majority of people who play games on mobiles are hiring the device to idly kill time, and there are plenty of free-to-play games in the App Store they can hire to do that. Games for this job are more of a commodity: Candy Crush and the like are free and likely good enough for most people that they wouldn't be willing to pay for a 'better' game.
Nintendo's strengths lie in the fact that they know how to make excellent games. I don't expect that the majority of mobile gamers care enough for that advantage to matter. Instead, contrary to their assertions, I think they should be focussing on a smaller niche for people who really care about games, and by extension the quality that Nintendo are known for.
This is a challenging proposition though. The biggest earners on mobile are fleecing the whales, but they're not doing it by making great games. King, the makers of the successful Candy Crush franchise, are experts in creating addiction: their developers aren't games designers but data scientists, looking to wring every last dollar from their users. The majority of successful F2P games are fairly transparent in the way that enjoyment of the game is inherently limited unless you keep feeding them cash. Nintendo aren't setup for this cynical cash-grabbing market, and I doubt attempting it would do their brand much good.
So, Nintendo need a way to make good money from dedicated gamers in a market with typically low ASPs, without resorting to brand-damaging IAPs. I see a few possible options. The first is attempting to pioneer a higher-cost for mobile games, accepting that customers uncomfortable with the up-front payment are unlikely to convert anyway. Next is some kind of limited free demo version, with one-time IAP to unlock all features/levels (a la Doom). The 3rd option is a little less traditional, but potentially more lucrative.
Consumers aren't used to paying for software, but they are accustom to paying for hardware. Ben Thompson observed that this strategy has worked well for FiftyThree, developers of iPad app 'Paper' (paywalled). Paper is free to use, but works best with a FiftyThree's 'Pencil' stylus, now the best selling stylus in the Apple Store. In contrast to Paper's IAPs of ~$8, the Pencil sells for $60.
I've noted before that one of the things that gamers accustom to console games find frustrating about mobile games is that touch screens don't measure up to dedicated hardware controllers. Perhaps there is an opportunity for Nintendo to leverage their hardware experience on mobile after all.
What if Nintendo's mobile games were free to play, but worked best with an add-on controller? It's easier to convince people to shell out for physical hardware, and Nintendo already have the chops and capacity to produce a great controller for the iPhone. There's already an iOS program for certified controllers, which has thus far failed to set the world alight, but if anyone can do it, it's Nintendo. If they put their weight behind a branded controller with the promise of Nintendo-quality games on mobile, I expect that'd be enough to pique the interest of the type of gamers who would be willing to spend good money in the App Store.
One thing is certain: as monetising in the App Store gets harder, many will be looking to see how Nintendo fares.