The iPhone vs 3DS Debate and Some Numbers

Recently Polygon's Ben Kuchera ran an Opinion piece titled, Today's Apple iPhone event is important for gaming, and more bad news for Nintendo. I disagree with Ben’s assertion that the iPhone equals "more bad news for Nintendo." Here’s why:

NUMBERS DON’T LIE
According to Ben, "Applying sales numbers to an industry debate quickly becomes an issue of asking if you'd prefer apples or oranges, but in this case it's worth doing, just to prove the size and weight of Apple's penetration into the pockets of the world." It’s actually not always apple-to-oranges and all about bottom-line, but let's look at numbers.

Apple
Revenue (2013): 170.9B
Employees: 98,000
Revenue per employee: 1,734,693USD
 
Nintendo
Revenue (2013): ¥635.422 billion (or 6.73B USD)
Employees: 5,213
Revenue per employee: 1,291,003USD

While Nintendo (and Sony and Microsoft, for that matter) would love nothing more than to sell millions upon millions of units, Nintendo does not necessarily need to sell the volume of product that Apple does to keep its employees paid and its board and investors happy; yes, Nintendo still has a board and still has to be profitable, but Apple has invested a lot more in R&D and has a larger employee base (Nintendo’s employee numbers are about 5% of Apple’s).

Nintendo makes a large share of its profit from first party software sales which are higher margin than Apple’s portion of app store sales, especially after you take transaction costs into account.

DS vs 3DS SALES
DS lifetime total sales: 153.98 Million
DS sales from 2004-2007: 47.27
3DS lifetime total sales (from 2011-2014): 44.14 million
3DS-to-DS hardware sales ratio: 9.3:10

What does this have to do with Apple? A lot if you take into account that the 3DS, which was released 10 years after the DS, has sold only 7% less than the DS in the same amount of time.

Also worth mentioning, the 3DS has done this even after stumbling during its initial launch and during a much more difficult global economic period. If Apple truly were cutting into Nintendo’s profit margin and market, we’d see a much larger decline in terms of hardware unit sales, but these numbers don’t lie. Even the original Nintendo Entertainment System (NES) is still considered an immensely successful console and "only" sold 60 million units during its lifetime.

According to a 2011 report by IHS iSuppli, the 3DS had a manufacturing cost of about $100.71. In three years time it would not be unlikely for that cost to drop 10-20 percent, bringing the total cost of goods down to about $80. (Note that this report was for the original 3DS and not the 3DS XL). In comparison the iPhone 5S costs about $205 (data also from IHS).

MAKING DIRECT COMPARISONS
I personally don’t feel that iPhone to 3DS is a valid comparison. Whether we'd like to admit it or not, a phone and the communication that comes along with it border on a necessity. Can we get by without a phone? Yes, but we can also probably get by without electricity, too.

Ben writes, "It's our Game Boy." It might be your game Game Boy—but please don't call it mine. I'll stick with a 3DS or PS Vita for portable games, not an all-in-one supercomputer with no D-pad or game buttons.

Tangentially, Ben mentions an article by Wired about the portable GPS market being dead. I don't entirely disagree, but until the market saturation on full-feature smart phones is complete, there is room for mobile GPS. IF the GPS market is dropping, this chart, taken from Technology Review suggests otherwise. Although the number of consumers who own a smart phone skyrocketed, the number of GPS devices also increased from 2009 to 2012.

The game market is not much different than this example in that there’s still room for different products that do complimentary things. And if you ask Apple and Nintendo, they'll both tell you they're not in the same space.

More importantly, what IS different are the business approaches by Apple and Nintendo. The former is in the business of selling hardware. There's a reason Apple stopped selling OSX as a general product. Apple wants you to buy its hardware, all of it.

The AppStore and games aren’t on Apple’s radar in the same way pushing hardware is. And how do I know this? Consider that in a 2011 shareholder meeting, Apple CFO Peter Oppenheimer stated, "We run the App Store just a little over breakeven."

BREAKEVEN...

This kind of statement affirms that--even if it is the best selling category---games on the AppStore are a much less appealing business to a company that recently had a seven-for-one stock split.

Nintendo is in the business of entertainment. While makes money off its hardware, it makes money off licensing as well as a large portion of its profits off its IP, characters and brand. Comparing Apple to Nintendo is like comparing Dell to Disney.

THE IMPORTANCE OF PLAYERS
"The idea of dedicated portable gaming devices with buttons and everything is already alien to children." wrote Ben. I don’t know if Ben has kids, but this isn’t the case with my children or the millions of kids who continue to own the 3DS.
 
iPhone is status. How many consumers utilize the full power and potential of all the fancy hardware inside an iPhone? And I know that doesn’t necessarily matter, because the iPhone will continue to sell, so long as it continues to be a beautifully designed and great mobile phone with a good user experience.

On the other hand, the Nintendo 3DS is entirely focused on portable video games. For those of us expecting more than that, there’s always the iPhone, all the F2P games and everything else available on the AppStore.

However, as consumers we will buy what is made available. The popularity of iPhone games and iPad games is undoubtedly driven by a generation that grew up with Nintendo who may or may not be passing off an iPhone to their kids to play.
 
Ultimately it's up to us to individually play games where we like. With that said, I try not letting my kids play games on an iPhone. They have a dedicated game console for that, the 3DS.
 

Disclosure: I am a licensed Nintendo developer/publisher and have published games on WiiWare, DSiWare, Nintendo 3DS eShop and Wii U eShop.