[October 16, 2019]
Ring Fit Adventure vs Peloton
or pdf download: Ring_Fit_Comp_20191016
[October 16, 2019]
Ring Fit Adventure vs Peloton
or pdf download: Ring_Fit_Comp_20191016
Click the tweet below to see the whole thread of tracking Astral Chain.
Initial adoption of #AstralChain #アストラルチェイン will be excellent as it’s highlight of August for #Nintendo. This #NintendoSwitch exclusive new IP will do well overall. The success of #FireEmblemThreeHouses helps. Both will help release of Dragon Quest XI S in September.
— Yui Nausicaa (@yuinausicaa) 2019年8月17日
Click the tweet below to see the whole thread of tracking Fire Emblem: Three Houses.
#FireEmblemAwakening had sold ~1.93M units by end of Jun 2015. I expect #FireEmblemThreeHouses to do much better as social media will help initial adoption and subsequent word-of-mouth. #Nintendo #NintendoSwitch pic.twitter.com/fKLjas3BrL
— Yui Nausicaa (@yuinausicaa) 2019年7月20日
Re: Partnership between Tencent & Nintendo to launch Nintendo Switch platform in Mainland China
Note to: Public
Distribution: Direct | @yuinausicaa | Futu Niu Niu | Slideshare
* The Console Business *
Gaming console is a two-sided platform with specific hardware specs and operating system that connects user and game software. Users first buy gaming consoles on which they play game software, a version specifically developed for the platform. Users buy console because they want to play existing game library and expect game developers to release more games on the platform in the future. Concerns for users to purchase a console include upfront cost, existing library, and future support of software developers to the platform. Developers create games, distribute their content on the platform to reach audience, and then benefit from various monetization methods. Concerns for developers to create games for platform include estimated audience base (installed base and its user profile), resources to put into development (upfront development costs, time to market, how easy it is to develop on the environment…), and other incentives provided by platform holder.
Indirect & direct network effect
A key characteristic of this two-sided platform is indirect network effect which creates a classic chicken-and-egg problem at launch and noises in the first one to two years for a platform with non-mainstream hardware specs. Generally, this problem is solved by subsidizing both the demand and supply by pricing the console at or slightly below the cost and reaching exclusive deals with third party developers. However, it’s not enough to only have third party content so platform holders also create first party games to attract users particularly at launch.
With widespread of internet, connectivity creates direct network effect in multiplayer games. Users can play with others around the globe or around the region (Mainland China is more likely to be the case). Since Nintendo Switch is a hybrid gaming console (home x handheld), the portability gives this console a social aspect unseen in other competing consoles in current / next generation.
Physical and digital distribution of hardware and software
Sales of hardware involve physical distribution no matter the transaction is made online or offline. Hardware inventories are either stocked in “warehouses” or “retail stores.” Software might be either distributed physically or digitally. Life cycle of console might last more than 5 years, and customer relationship built might last for decades. Thus, customer service/support and repair are inevitable. When the business involves physical distribution, supply chain / logistics capabilities become imperative.
Legally introducing Nintendo Switch to the new market
Understanding abovementioned fundamentals is key to evaluation of a platform launch. The goal we’re trying to reach now is to legally introduce an established gaming console to a market dominated by other gaming style and regulated differently. The market share of console gaming in China in 2018 was probably less than 3%. To unlock market is very challenging but this is also a once in a generation opportunity for execution team to create a multi-billion dollars business and make history. What I see here is there’s limited downside for responsible individuals as everybody knows the task is tough while the upside is enormous.
* Go-to-Market & Ecosystem Coordination *
Market penetration before official operation
Before Nintendo’s decision to collaborate with any company to enter China market, I think their most efficient way to penetrate the market was localizing the system and games as many as possible and then just let the market mechanism work for them. The limit of strategy above is obvious – the user base probably would not go beyond early adopters. Those hardcore/enthusiastic gamers have figured out how to enjoy the system without official support. With high penetration of social network/media, communities that facilitate information exchange and transactions are built. However, it’s still not enough for the product to take off and diffuse further without the help from platform holder/ecosystem coordinator. Apparently, gaming console is not a product that can sell or scale by itself in Mainland China. For a system without official support, frictions are too large for potential users to adopt, let alone we have country specific challenges for gaming consoles. Looking at numbers of Xbox and PlayStation with official support, it seems they’re still struggling to gain traction. What the team needs to do includes coming up with a sophisticated go-to-market strategy, testing different growth hacking tactics, coordinating previously unmanaged ecosystem, cultivating Nintendo’s IP…
Since Nintendo knows which game is first enjoyed by a new user, I believe the team has the information about how many wild Nintendo Switch there are in Mainland China. By depicting ecosystem and social graph, it is not difficult to find fair number of existing users belong to different communities to conduct user research. Understanding those early adopters adds value to some extent even though their user profile (demographics, user behavior…) and user stories might be significantly different from that of those primary target audience that the team will spend most time and resources on.
It will take longer or much longer compared to other markets where potential mainstream users are familiar with the IPs and value proposition. Current user bases in other markets are more akin to reactivation than acquisition. Cumulative advertising expenses per unit shipped between FY17/3-FY19/3 in other markets was around JPY 5,664. I think even with rigorous budgeting the number in Mainland China probably will be probably three times until the team finds magic formulas on conversion. As potential users are price sensitive, it’s reasonable to expect different subsidies, discounts, bundles to drive demand. Thus, all-in customer acquisition cost (CAC) should be even higher.
Launch of platform
By that time, we will officially know how strong Nintendo as a brand and their IP are in Mainland China beyond early adopters.
Customer engagement & retention / customer lifetime value (CLTV or LTV)
Customer engagement and retention is key in nowadays gaming business (from single game in any device, to gaming console, to digital gaming storefront, to cloud gaming service). Thanks to internet and various monetization methods adopted, on-going revenue streams from specific user after games being installed or services being used become possible. Game operators want to keep their users active (prevent them from churn) to benefit from DLC/season pass or in-game monetization. It’s even more important for massive multiplayer online game and games with strong social aspect as user activity determines whether network can reach critical massive and its sustainability. Key financial metric migrates from contribution profit from one-time software sales to customer lifetime value.
Because of supply aggregation and higher customer acquisition costs on gaming console, loss from customer churn multiplies. In the past, the platform holder would just keep bringing high quality games to the platform (better if they’re exclusive) until it’s time for next generation hardware with limited channels for customer engagement. With widespread of social network/media site/UGC site (adjacent platforms) …, channels to reach players increase while competition for user’s interest and time spent become fierce than ever. Like user behavior in gaming console, users generally multi-home on those adjacent platforms. I expect competitive landscape would be described as market-sharing with clear power law which might impact how the primary platform builds relationship and collaborates with adjacent platforms.
Ecosystem and communities
By visualizing participants in the primary gaming platform, adjacent platforms and sales and marketing, the concept of ecosystem is easy to grasp. By zooming into social network and micro level interaction, online and offline communities (meetup, unofficial tournament…) can be identified.
Ecosystem coordination might benefit not only customer engagement and customer acquisition but future platform business. Coordination involves policy implementation, regulation enforcement, and resource allocation.
* Business Intelligence, Traction & Metrics *
Information to be gathered, shared and monitored, and data to be collected and analyzed are shown below.
User behavior information
Platform performance and unit economics
Social network/media, media site, UGC sites, owned channels
Traction, milestone and target
Nintendo (7974.JP / NTDOY.US)
[January 31, 2019]
* Review of Nintendo FY3Q2019 Earnings Release *
[1.0] Nintendo Switch (NS)
[1.1] NS Hardware
Nintendo managed to ship 9.41M NS in the last quarter (FY3Q19/CY4Q18). The global cumulative shipment of the console comes to 32.27M as of CY4Q18. Nintendo also revises down the forecast of NS from 20M to 17M for the fiscal year ending March 2019. For reference, the pattern of NS shipment during this FY is as follow: 1.88M / 3.19M / 9.41M for FY 1Q19 / 2Q19 / 3Q19. Nintendo has shipped around 14.5M NS during the first three quarters which makes the new target of 2.5M in FY4Q19 quite reasonable and achievable. The guidance revision can be partially attributed to poor software lineup / schedule in the first two quarters.
The implication from forecast revision and Nintendo’s communication:
[1.1.1] NS JP Shipment Exercise
I did an exercise on NS JP shipment estimation based on the sell-through numbers and historical patters. I expected the JP shipment was around 1.84M based on cumulative shipment being 7.5% higher than sell-through. It turns out that Nintendo shipped around 2.2M NS which makes the gap between cumulative shipment and sell-through widen to 13%. I can feel that Nintendo tried to push the NS shipment in its home country.
[1.2] NS Software
As expected, Super Smash Bros. Ultimate, Pokemon Let’s Go Pikachu / Eevee and New Super Mario Bros. U Deluxe did well in the last quarter and Nintendo revised up the software shipment from 100M to 110M.
Thanks to system sellers in holiday season, the overall NS tie-ratio (defined as software shipment during the quarter divided by LTD hardware shipment by the end of the quarter) is back to trend. Given current software schedule, I expect the overall tie-ratio for FY4Q19 will be slightly higher than 1.1x. Lets’ see if Nintendo can schedule Animal Crossing to launch in summer to make the ratio less seasonal even though evergreen titles form the foundation of software sales.
[1.2.1] Digital Sales
Digital sales is performing as well. Digital sales number including Nintendo Switch Online in first three quarters of FY2019 jumped by 38.7% compared to the whole year of FY2018. The proportion of digital sales has increased to 21.8%.
[1.3] Other Metrics
Both inventory and days sales of inventory (DSI) were both reduced to healthy level.
[2.0] Nintendo 3DS
As expected, Nintendo said it will continue to leverage the installed base and rich library of Nintendo 3DS. That said, the contribution from the handheld console will be less and less significant.
[3.0] Smart Device
The performance of Smart Device was not impressive as the company is still experimenting in this space.
That said, if they keep their mediocre reporting on smart device performance and communicate their mobile app focus like below, this business segment is not going anywhere in the foreseeable. Targeting by number of new apps per year is another sign that the company still has no direction in app gaming space. Maybe Nintendo has some update in the business briefing next day.
As we endeavor to develop future planned applications, we will also focus on continued service operations for applications that have already been released so that consumers can enjoy playing them for a long time.
[3.1] Mario Kart Tour Postponed to this Summer
In order to improve quality of the application and expand the content offerings after launch, the release date has been moved to summer 2019.
At least it’s a delay rather than a re-development like Metriod Prime 4.
[3.2] Dragalia Lost
If you see the advertisement after two month since launch like below, it’s probably not a good sign.
@dragalialost @Nintendo add a QR code or something in the registration (while minimize the friction) to track the performance of this user acquisition channel. I believe Cos now have enough data to estimate “avg” CLTV and what they need to check is the cac on specific channel
— Yui Nausicaa (@yuinausicaa) 2019年1月2日
Still waiting for more details to be disclosed in the business briefing. However, we can get some colors from CyberAgent’s presentation.
Power laws might also apply to mobile gaming so whether the uptick in January probably driven by cac depends on the fundamentals of gameplay and monetization.
[4.0] Overall Impression from this Earnings Release
Delays in Metriod Prime 4 and Mario Kart Tour, downward revision of Nintendo Switch shipment forecast and the conservative financial forecast make me feel Nintendo is enduring a transition period where it wants to bath and manage the expectation.
More color after business briefing.
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