Saturday, July 05, 2014


Nintendo vs. Amazon STEEL CAGE DEATHMATCH!!!!

It's the second year of the Wii U's life, and things aren't looking pretty.  It seems baffling that Nintendo could score such a success with the Wii, yet find so little interest in its successor.  What went wrong?  What's different?

In the time leading up to the Wii's launch, Nintendo was pretty open about the fact that they were pursuing a disruption strategy.  But what is disruption?

Some Idiot on the Internet Talks About Things He Doesn't Know

My understanding of disruption is that it goes something like this.  Your company is stuck in a very fierce and competitive market where you can't hope to go toe-to-toe with the competition.  So you target the low end of the market -- you start offering goods and services that your competition considers to be "beneath" them.  They're too busy fighting over who has the biggest and best product to try and fill these niches.

You grow your business with these low-end products until you have a loyal customer base.  Then you move up a rung in the market.  Your goal, of course, is to bring your low-end customer base with you through brand loyalty and recognition.  You start to court customers in the mid-level range of the market.  Every time you get bigger, you move up a rung, until eventually your following is a direct threat to those big guys at the top.  Instead of trying to match their features and services, you're now setting the standard, and the big guys are scrambling to catch up.

And that's what you've seen Nintendo attempt.  They made the Wii -- a cheap, scrappy little video game console with this simple little controller and these simple little games.  Then you saw them try to make "bridge" games, like Mario Kart, to try and pull all of these new gamers up into the kinds of games that the established gamers get into.  The Wii U is the logical next step -- an HD system with complicated controllers and a decided focus on the longer and more complicated games rather than the simple mini-game packs the Wii was known for.

But as we've seen, it didn't quite work out according to plan.  There's any number of possible reasons -- Nintendo waited too long and didn't move up-market while the Wii was still a hot name, they didn't advertise enough, their new audience was too fickle, their market was saturated, whatever.

Or maybe Nintendo just picked the wrong way to disrupt the video game industry.  Because here comes Amazon.

The Amazon Story

Way back in the formative years of Web 1.0, life was wild and Geocities was a thing.  There was much talk and bustle surrounding the potential for the Internet to connect businesses with customers, but it was kind of a crapshoot.  Nothing had been standardized.  No one had built a reputation yet.  It was hard to tell if you could trust anybody.  And sure, it was great if you really needed to connect with someone who had a particular novelty item that you couldn't find anywhere else, but why would you bother if you didn't have to?  It could never match the convenience and security of shopping at a brick and mortar store.

Enter Amazon.  Remember how Amazon started?  It was an online book store.  That was it.

As part of a disruption strategy, it was an excellent first move.  After all, books are sort of low-end devices, aren't they?  Certainly not as cool as video games and movies and stuff.  Books have their following, but a lot of people tend to just shrug and ignore them.  Hell, public libraries let you have the things for free, but you don't see people lining up down the block for them.

So it was a niche service, but they had the upper hand over the brick and mortar stores -- they could offer a much wider selection.  When readers couldn't find a particular book at their local stores, they knew they could turn to Amazon.  And when they had positive experiences with it, they continued to go back.  And then they started to skip the local stores altogether.

Amazon began to grow a following.  Was Best Buy worried?  Was Wal-Mart?  Hell no!  They're just a book store.

But then they started to add to their catalogs.  Movies.  Music.  Video games.  Toys.  Clothes.  And then, anything you could think of.  I wouldn't say they were single-handedly responsible for the decline of dedicated movie and record stores, but goodness knows they didn't help things.

So Amazon has a long, successful history of disruption.  They've never chained themselves down to being just one thing.  They might not be the single largest online marketplace, but if I told you they were, would you question it?  They've even stolen a slice of eBay's pie by letting people open up a marketplace through Amazon.

So what does the largest retailer of physical goods do when the world goes digital?

Amazon vs. Digital

The truly remarkable thing about Amazon is how deftly they've been able to adapt.  Someone must have seen this hammer coming a long, long time ago, because by luck or by wit, they launched the perfect response to it.  Did they dig in their heels and go, "We're a store, by gum, and we sell things, and if people don't need that anymore, well, then that's just how it's going to go."

Nope.  They got out in front of it.  How?  Same way they did before.


The Kindle.

Wasn't it kind of funny to hear that Amazon was going into the device business?  You don't see Wal-Mart starting their own brand of computers.  Toys R Us never came out with a console.  What the hell is even the deal here, anyway?

But as a disruption tactic?  It's perfect.  Sure, there were electronic reading devices before the Kindle, but they were curiosities for a niche audience.  Nothing had been standardized yet; it was a market that was waiting for someone to move in and say "This is how you do it."  And they had the advantage of their clout as a storefront for physical books.  They already had name recognition for people who liked to read.  They already had inroads with every major book publisher.  And a dedicated reading device isn't going to raise any eyebrows with Apple or Microsoft or Google or anyone like that.

And they had the perfect push for it.  Start with the fact that it was cheap.  For someone like me, looking to buy his very first tablet, but not really knowing if it was something that would add value to his life, a low cost of entry is a huge draw.  On top of that, add FREE DATA.  To really get the most out of a smartphone or a tablet, you need to buy a monthly data package.  Amazon realized that people would get more use out of their device if you removed that cost.  And they could get away with doing this because most of the data people access is going to be from the Kindle store; they could just figure what people were likely to spend on data during the life of the device and add that to the price of services.  They wanted people to be able to hear about a book and buy it right there, wherever they were.  Yeah, there was a free web browser, but it was such a limited and tedious thing that most people would never really get a lot of use out of it.  It's not like the device was designed for sharing photos and video the way a smartphone does.  And yes, it would even play games.  For a while.

Of course, being such a cheap device meant that it was of lower quality than those sexy high-end tablets.  But Amazon pulled a perfect reversal and turned those weaknesses into strengths.  The Kindle doesn't have a sexy color screen?  Turn that around, and that means it's good in any light.  Seriously, look at any ad with a Kindle, and people are outside at the beach, reading like a master of the universe. They made it a part of this lifestyle for people who travel and recreate and enjoy themselves.  The Kindle has a weak little CPU and doesn't glow in the dark?  Good news!  That means the battery lasts forever!  And if you do want to read in the dark, hey, we can sell you a case with a little low-power LED reading lamp that draws right from the battery!  So convenient!  There's no touch-sensitive screen and the whole UI is controlled with a thumb-type keyboard and direction buttons?  Lucky you!  That means no smudgy fingerprints all over your screen to distract you while you read!

Seriously, that was a bullet point.  No fingerprints.

So they built this low-end device, perfect for disrupting the mobile market, backed it with a huge library of books, and built up a user base.  For some people, it was their entry into the tablet market.  It made them realize the value that a tablet could add to their lives.  They matured as consumers because it whetted their appetite for things that they hadn't really considered before.  It made them start to think about trading up to the next level.

And Amazon was ready for them.  The Kindle Fire.  When I was looking into upgrading to a really-for-real colorful flashy touchscreen tablet, I did a little snooping around.  I never bought the device myself -- I was too invested in Apple's software ecosystem -- but I heard it described as the best device for its money at the time.  Maybe it wasn't a pseudo-laptop the way Apple and Microsoft's devices are, but it delivered the fun appy things that people want their tablets to do, and for a fraction of the price.  It's the device that turned my mother and my brother's heads.  It was perfect for people already invested in the Kindle as the next logical step up as well as for people looking for their first tablet.

But it wasn't just about having a cool device.  Amazon was setting up digital distribution for other media -- movies and music.  Amazon Instant Video.

The clever bit?  It was platform-agnostic.

Sure, I bet Amazon would rather that you pick up their device to watch all of your streaming movies and read all of your e-books, but they were happy to sell to you even if you didn't.  There are Kindle and Instant Video apps for god damned everything now.  And this is where companies like Apple and Microsoft -- not to mention Nintendo, just to bring us back to the point of this whole ramble -- are really out in the cold.  Amazon sells content that doesn't need to be stuck in one proprietary device.  You can buy it once and truly use it anywhere.  On your iPad.  On your PC.  On your Wii U.

So all this time, they've been pushing upmarket with better devices, offering better services, selling you things through other people's platforms.  Are the big guys worried yet?  Do they even notice what's happening?

BAM.  Fire TV.

Fire TV

The set-top box.  The center of the living room.  Amazon's making their big grab.  But they're not making the same mistake Microsoft did.

It's a device that lets you download games that you play on your huge TV with a proper handheld joysticky controller.  Developers have been turning their interests toward it as they damned well should.  But they're not calling it a game console.

Just think about some of the implications here.

It's a set-top device from Amazon.  A major player.  There have been set-top devices, but nobody has really caught the public attention as the standard for the industry, much like when Amazon went into the e-reader business.  It's a platform for selling video games, but it's marketed as a device with much more general-market appeal than a dedicated video game console.  So even if the games don't take off, they've got a lot to fall back on.

I think this has the potential to really hurt the Big Three home consoles in the long run.  This is a device that will sell to people who wouldn't normally care about video games.  But then they'll discover cheap, fun games that they can play on it.  Maybe Little Billy doesn't need an X-Box for Christmas if he can already play games on Mommy's Fire TV.

I'm not confident enough to say that Amazon has this all wrapped up -- there's lots of players in this game, and plenty of time for some upsets.  But I do think that they nailed the disruption game in a way that Nintendo didn't.  They saw a lucrative market, and they figured out the perfect direction to approach them from.  They didn't sneak a game console into people's houses under false pretenses; they made a device that filled a niche and offered video games as just one more feature.  They didn't just sit on their online bookstore and try to get more people interested in books; they evolved into a company that's become a major contender in the home electronics market.

If nothing else, you have to admire the beauty of a plan that's come together.


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