Monday, April 11, 2011

Blizzard can still do a Nintendo

When I was 18 I did a school project, called simply "project". It's something most kids get to do in swedish schools around that age (usually the last year of what we called the Gymnaisum, approximately corresponding to College)). What the project is to be about is decided by the school, and depending on what kind of school you go to, it can be about anything really. My school was kind enough to allow me to write about anything I wanted because the point of the project was not so much the result, as the possibility to experience and learn the scientific method. To decide for a subject, narrow it down (you always have to narrow it down), collect relevant data and gather it into a result that is interesting and has a point. I had a class mate who did a dance show. I decided to write an essay on a subject that really intrigued me - games. More specifically, I wrote a nearly 70 page long essay on the question as to how Nintendo managed to throw a basic monopoly of the console gaming market into the gutter. My text was in large based on the great book Game Over by David Sheff, a book I really recommend by the way if you're into these kind of things. The answer to my question was simpler than I had thought.

Why did Nintendo lose their console gaming market monopoly? Self-confidence. The belief that the company ruled the interests of the gamers, and not the other way around. I won't give you an entire background history on Nintendo, suffice to say they've done a bunch of things before they decided to try out the gaming market. The former CEO of Nintendo, Hiroshi Yamauchi, was in many ways a pure genious when it came to following his intuition and deciding what would work and what wouldn't. But that is all in the book. To grasp the control Nintendo had on the market, you need some quick information about how and what Nintendo could do during their heights (which lasted somewhere between 85-95). To get a license to create games to the Famicom (as the NES is originall called) companies had to agree to terms that shocked most people, like a royalty of about 20% of all sales, and payment for each cartridge created in advance. That way Nintendo would make loads of money even if the game never sold. But Yamauchi just told them that no one forced them to get a license, and if they wanted one they had to agree to the terms. In most cases, getting a license for Famicom games still quadrupled the annual income of a company. Companies that couldn't afford it tried to create their own, un-licensed cartridges. Nintendo didn't look kindly to those companies and forbade any magazines who wrote about Nintendo games to also write about un-licensed games or publish their advertisements. The Nintendo magazines were officially independent but because they completely relied on information provided by them by Nintendo, they obliged. This example is just a drop in the ocean of the close to despotic way that Nintendo ran the market.

But then something happened. Actually, a lot of things happened. If you're not interested in this run down and want to cut to the chase of this post, you can skip this part. This is of course a wrap up and not the whole truth. Like I said, if you want to know it all, read the book!

In 1986, Nintendo started a collaboration with Sony in which they were going to build "the next big console". It was going to upgrade the Snes with a CD-rom, and it was going to be awesome in every way. No one doubted that since Nintendo had basically revolutionized the market with both their NES (Famicom) and their SNES and had games that just were in another league of other game consoles such as the Amiga. Sony were basically done with the console, when Nintendo pulled out. Sony didn't agree to some of the terms that Nintendo had asked for, so Nintendo decided to accept a collaboration with Phillips instead, who offered a lot better terms (ie, agreed to Nintendos without much question). Sony announced that they would release their gaming console anyway, since it was pretty much done. Most gaming magazines, which wrote 99% about Nintendo games, mockingly wrote that it would be really interesting to see how the gaming console that Nintendo had declined to produce would turn out to make it on the market, especially with Nintendo themselves as the competitor. Needless to say, no one thought Sonys new console, named Playstation, would make it very far. Especially not Nintendo.

Around that time, Nintendo only had one really big comptetitor, which was Sega. Nintendo were still Goliath against Segas David, but Sega had a small but strong fan base which shouldn't be ignored. Initially, Sega really didn't have much to put against Nintendo. There are plenty of awesome games to the Master System, but the sales never even came close to the ones of Nintendo. Not to mention that Nintendo had loads of really big games - Zelda, Mario, Metroid to mention a few - where Sega basically only had Sonic. Nintendo couldn't care less about what Sega did, just as they couldn't care less about what Sony did. They still had 95% of the market.

In 1992 was Mortal Kombat released to both the SNES and the Mega Drive. Sega allowed Midway to do their game just as they wanted, whereas Nintendo decided that they didn't want all that blood thrown around. Games were for children, and children weren't supposed to see that kind of stuff they argued. This is where Sega made the first move that would soon spell Nintendos downfall, because Sega had understood something Nintendo hadn't. Markets change. It had gone 10 years since Nintendo really entered the scene and made video games a thing for common people. That also meant that all the people who had started out with the NES and who really loved video gaming were 10 years older now. They would've gone from being children to being teenagers. Teenagers who liked violence and blood and who didn't like other people telling them what they could and couldn't watch. SEGA knew to exploit this Nintendo mistake immediately. They launched the rumours that described the Nintendo console as a "console for children" and if gamers wanted "real games" they had to play SEGAS consoles. The players agreed. Nintendo had no right to censor games for them and they started jumping ship. Because Nintendo really did think their gamer base was mostly made up of 6-10 year olds as it had been during their glory days, they continued to make games aimed at those children. When the Nintendo 64 was released most people agreed  - the games were mainly designed to fit children. If you wanted grown up games, you had to go somewhere else. Nintendo never really managed to wash this brand away, and I remember how I had defend my Nintendo 64 to people who were dead set that there was nothing to play on it but games for small children.

Sony released their Playstation just after the SNES and some years before the Nintendo 64, and managed, miraculously really, to launch some great games to it like Final Fantasy. Somehow Sony had convinced Square to take the next part of their big seller series Final Fantasy to their console instead of Nintendos next console. Actually, it wasn't very difficult to understand why. Sony offered Square free hands and the new technology of the cd, which allowed Square to not only do exactly the game they wanted, but also to include butt loads of awesome 3d cut scenes, something they had been wanting to do for a long time. To most game designers it was like getting their hands untied, to be able to create a game exactly like they wanted to and without being buried under a mountain of terms and regulations. Nintendo didn't believe in the cd system, and the Nintendo 64 was therefor yet again played with cartridges. In a combination of Nintendo turning down games they thought were too violent, and game developers themselves preferring the free hands they were offered at the competitors, more and more great games showed up on other consoles than Nintendos. Suddenly, the game series that had been Nintendos great strength - Zelda, Mario and Metroid as mentioned, were also all that Nintendo had left that interested people.

Instead of reacting to the threat that Playstation turned out to be, Nintendo took their time with the Nintendo 64, just as they had done with the SNES. They "knew" that no one really cared about the Playstation and weren't worried that it would completely repaint the market while Nintendo were absent working on their next, big thing. In reality, this is exactly what happened. When Nintendo 64 finally was released, 2 years after the Playstation, Sony had been able to deal a fatal blow to Nintendo and shown everyone that their position on the throne wasn't set in stone. The Nintendo 64 had to be pretty dang awesome to be able to battle the damage the Playstation had done, but people were deeply disappointed.

Nintendo were staggering under the pressure of not being able to make the Nintendo 64 as interesting as the Playstation. That is when the final blow came. Sony released the Playstation 2, and it was compatible with every game to the Playstation. People were flabbergasted. Why had this never been the case before? Why couldn't people play their NES and SNES games on their N64? Since the games is what really makes the money, Nintendo had always argued that there was no reason to make a new console if people only played the old games. People had to buy the new games. Sony, ready to do anything that would please the player public, decided that using this could be a winning strategy, and it worked. Suddenly everyone realized that there was no reason to buy any other console than the Playstation 2. The library of games available to it was just unbeatable, and Sony managed to grab not only veteran gamers, but just about any parent who tried to decide which console to buy their kid for christmas. Just about anyone who decided whether to buy the Playstation 2 or another console inevitably decided for the former making the Playstation 2 the best selling console to date. Nintendo had by then lost basically the entire market to Sony, and noticed it of course. They desperately tried to save a sinking ship, releasing the Gamecube just shortly after the Playstation 2 and having accepted the cd-system (although not a regular one). But it was too late. The Gamecube wasn't backwards compatible either and Nintendo had been firmly branded the "childrens games"-company. Everyone were sure Nintendo would go the same path that Sega had done, closing down their console development and focusing solely on producing games.

Nintendo were down for the round, but definitely not for the match. They managed to get back to the arena because they learned from their mistakes and because Sony didn't. A new competitor came on the scene - the Xbox. The Xbox had one triumphant card - an enourmous economical backing, which would allow them to survive the first years of horror that were needed for them to be able to launch, make people interested, and have them stick, before they were out of money. This is something many mmorpgs recently launched have lacked. To be able to get a foothold in the fierce competition, you have to have the money to be able to go with negative figures for years until you've found enough of a player base to keep you afloat. Initially, Xbox's were sold for less than production cost, just to catch peoples interest. This was something Microsoft could do and they knew how to use it to their full advantage. Nintendo went down with the Gamecube, licked their wounds and made a full blown retort with the Wii. They looked back at their mistakes and figured how to best be able to learn from them and use that knowledge to their advantage. Sony and Sega had been able to get their foothold by pleasing the new adult gamer market. Nintendo decided that they too had to find a new market, previously untapped. They found the non-gamer. Everyone should be able to play games, even people who never played games. With the Wii, they definitely managed to make a come back through these non-gamers. Nintendo had also realized the power in backwards compatibility, and made the Gamecube games compatible with the Wii.

Sony on the other hand, went and made the very same mistakes that Nintendo had done. They decided to keep the launch of their console up to a year after the new Xbox 360 was launched, as did Nintendo with their Wii. Problem was they thought it would suffice to simply launch a better version of the same old. The key is to either launch your system first, or to launch something different (and still good) enough for it to be more interesting than the one that came first. Playstation 3 was neither. But that wasn't the only mistake. Sony too thought they had their player base in a firm grip and that basically nothing could get the players to prefer another console over theirs. After all, they had ruled the market for some 10 years (deja vu anyone?). They decided to not make the new console backwards compatible, and it was also by far the priciest console of the 7th generation. Sony had become too sure of themselves, and basically recreated the very same mistakes that had spelled Nintendos downfall.

Whenever I see how a big company loses market shares
, it's often preceded by decisions as the above. The company decides that they have nothing to learn from their own market, that instead the market should adapt to their needs, which usually haves the market travel over to the competitor instead. It's war out there, and if you get too sure of yourself, you will be shot down.

The reason for this rather lengthy post (beside that it is an interesting subject) is that I have been monitoring the decisions of Blizzard, and especially their responses to other mmorpg launches, very closely. They could've easily made the same mistakes as Nintendo (and Sony, and loads of other companies), become too sure of their own greatness and lost market shares because they didn't listen to their market needs. When Activision bought Blizzard, I was very afraid this is what would happen. But I must hand it to them, they have been really good at listening to the players and trying to find a good way to mediate between their visions and the players needs, handing out just enough sparkly ponies for us to stick around and for new players to choose them over the competitors. One great example of Blizzards plasticity is how they have incorporated various addons into their own UI over the years. What better way to acknowledge a player need? Overall Blizzard have been really active in their responses to competitor launches, having some interesting content of their own ready to keep their players interest and most importantly show them that they really care for us (and our money) and don't take us for granted. With the competition growing ever harder however, the margin for error becomes smaller and smaller. In the end, one delayed patch could spell the beginning of the end, and I will continue to watch the process of things to see how they unfurl in the future. It will be very interesting indeed.


  1. Nice post, lots of good background and food for thought.

    I would throw three caveats into the analogy pot, however.

    1. The piece of the analogy that is not there is network effects. For the most part, the console market has not been driven by network effects at all. Sure, by now some people are playing against each other over the internet, but this is a relatively recent phenomenon and pales in comparison the the "network pull" that Blizz has. WoW is a very social game - MMORPGs are by definition.

    2. For the casual player, there is more than enough content in WoW. I have played ungodly amounts (given my real life commitments), and there are absolutely tons of things I have never done in the game (and will never get to do).

    These two are pretty powerful forces holding things together for Blizz. And as you point out, they are quite responsive. It's not just incorporating add-ons - it's allowing such a plethora of them - and taking game mechanics that make the game a drag and improving upon them - they do this all the time.

    Of course WoW will crumble someday, I just don't see it driven by something that is "slightly better."

    3. To break WoW, the new new thing will have to have stunningly better content, or technology, or both, imo.

  2. I'm not sure I consider the Nintendo story to be as straightforward as portrayed. Certainly I didn't get a sense that Nintendo was in trouble, though I did feel like they were burning through past profits as they experimented around with the 64 and Cube.

    In the same vein, I don't really see the Blizzard situation as straightforward as all that, either.

    I see at least three levels of hierarchy at Blizz, and there are probably a lot more. There is corporate Activision/Blizz, there is "Corporate WoW", and there is "Technical WoW" A fourth might be "Customer-facing WoW". These four entities really don't mesh all that well, so the decisions and actions made by one are often independent of the designs of the other.

    For example, the CEO: a total and utter jerk. I'm not making this up; he's often and loudly declared how he uses terroristic tactics on his own employees to keep them under his thumb. And if he hates his own people that much, imagine how much he despises you and I, who do not give him money for nothing at all.

    The views of this sociopath are not expressed via the "official" outreach of WoW, such as GhostCrawler's blogs or your average CM on the boards. And yet, there it is, the heart and soul of this company most likely despise us from crown to toenail. In that regard, the CM and other PR branches of this company are being paid to lie to us to keep our money coming in.

    I'm just jaded enough to consider this "business as usual".

    There's only so much that PR can make up for, though. I haven't been a doomsayer, but I do think there is a significant undercurrent of distrust and unrest in the player community. The fact that they keep rolling out new and shiny things without finishing the polish on the existing software is one sign of a disconnect between the needs of the players and the wants of the developers. And so on, and so forth.

    Nintendo survived as long as they did by dint of being the only show in town (Sega really couldn't deliver, Commodore was on the way to self-destruct, Atari likewise, and so forth) and having a well-filled war chest. Not every company gets three tries, but they managed to keep it together, learn, and execute. And they did a brilliant job.

    If Blizz has lost its way, then as long as it can find its way back to its heart, it'll do fine, though WoW may suffer along the way. Diablo 3 is the next big chance to succeed or fail for them, I think the main MMO crew is focused on Titan.

    Well, we'll see. The good thing with all the free to plays out there is that, if they do cock it up royally, we'll all have places to go.

    Though I would miss a lot of us terribly.

  3. Oh, I do want to make one clarification, RE my comment about not seeing Nintendo in much trouble.

    Keep in mind that the start of Nintendo came about after the great home video collapse of the early 80s. We were still feeling a but numb over that, so everything that Nintendo did was gold. We were just happy somebody survived the crash, honestly :)

  4. @Grimtooth: "For example, the CEO: a total and utter jerk. I'm not making this up; he's often and loudly declared how he uses terroristic tactics on his own employees to keep them under his thumb. And if he hates his own people that much, imagine how much he despises you and I, who do not give him money for nothing at all. "

    Have you ever heard the phrase "For extraordinary claims you need extraordinary evidence"? Give us some meat to your hateful vegetable dish. :)

    @Zinn: Very interesting article, I think I'll be late for work now but it was worth it!


  5. @WoWMidas
    1) You're definitely right that in comparison, console games of the late 80's and throughout the 90's didn't have much of the network that we have today. But back then nothing really had the network that we have today. Internet was still a spawn. If you wanted to be cool with your friends, you had to play the same games as them (or same toys, etc). It's not as big as WoW, because through WoW I can play with friends far away, but it's still the same effect I think.

    2) WoW is huge, no doubt about that. But WoW is also just one game. And even though it is big, it wouldn't have kept its huge playerbase without all the big patches and expansions that they have released for it. People need new content all the time, whether it is within a game or not. I think it is compareable to one console which needs several good games to keep players interest.

    3) What broke Nintendo is a combination of them not adapting to new technical advancements and them not listening to the needs of their market. Like I said, I don't think that Blizzard has a problem with this at the moment - but if they would go down I think it would be because of issues like these.

    The story is far from as straightforward as portrayed, it's an extremely short version of course (like I said, read the book!). I still hope the point gets through though - that Nintendo once basically owned the market, and in the late 90's they didn't. So what happened? They put on restrictions and terms to just about everything, seriously crippling any company who tried to work with them, I've just given one small example. That is not a humble attitude to your own existence and market, and I think that is what ultimately had them fail. Then they learned from that and made a great come back.

    WoW has long been then only real show in town much as Nintendo was. Sega, Commodore, all those consoles probably did just as honest tries to get a slice of the cake as AoC, GW and the rest did. But WoW was first and a little better, just as Nintendo (not first first of course, there were plenty of mmorpgs before WoW and consoles before the NES). I think this post was mostly to illustrate that things can turn around so easily. They are similar in as many ways as they're not of course, but history still has a tendency to repeat itself.

  6. @rapidfirewolf - Gee, I thought that this was fairly common knowledge, but let Scott Jennings get the ball rolling.

    I'm not sure the rabbit hole starts there, but you can see the entrance from there. Searching that site for hits on "Kotick" further fleshes it out.

  7. I'm mostly clueless about the whole console thing -- I grew up with as a computer girl while all the boys around me had their consoles. I would play Jill of the Jungle, Duke Nukem, Wolfenstein, and eventually Myst while the boys were playing Mario. Soooo, the first console my family ever bought was a Playstation 2. We jumped in feet first and I've found a love (to this day) for RACING GAMES WOO HOO! I love racing ATVs because I know my father would still kill me, even at 25, if I so much as went faster than 15 mph on one.

    I do intend to buy a Wii for my mother, though, because of all the fun fitness games. Nintendo struck gold there.

    You are very right; the player base will always buy what they want, when they want, and nobody is going to tell them otherwise. Someone will always make an alternative (Android vs. iPhone).

    Loved your article! You gave me a bigger dose of console history than I could have ever found on my own! :)

  8. One thing that has always frustrated me about Blizzard is that they never seem to quite have their fingers on the pulse of their player base or if they do, they're horribly off the mark. Specifically, they seem to underestimate their subscribers.

    I remember when Burning Crusade came out and the servers were crashing all around us and realms were being split up and offered free transfers to clear up space. Blizzard immediately went with this "Well, gosh we didn't know this would happen" response. That seems to be their consistent response to a lot of things. It was cute the first few times they uttered this and then it just became really hard to believe.

    How do you not know what your fanbase is capable of? How do you consistently manage to be surprised when they demand more from you or you don't take additional steps to reinforce your product to please the masses? How do you just not know? I really don't understand the feigned sense of modesty or ignorance surrounding Blizzard's stance on a lot of things.

    I think if they took away that veneer and really got in tune with their player base and not what they perceive it to be or would like it to be, they could end up in a better place. Something tells me they know already, but just choose to not do anything about it or acknowledge it - as I stated earlier.