Nintendo is having a bad year. Revenues are off sharply, and profits are a distant memory. Earlier this month, one of the companies bringing forth a new title cancelled the launch because there just weren’t enough customers remaining for the Wii. Just this last week Nintendo’s President admitted to making a mistake by chasing casual gamers and abandoning serious gamers. I’ll agree that was a mistake, but I think the real mistake was not seeing how much gaming development was moving to smartphones and iPads. Another mistake was bringing out a console that was behind in technology but profitable, and not cycling quickly. The final mistake was not having a plan B when the Wii fad wore out.

Let’s talk about the Nintendo Train Wreck this week.

Wii vs. PlayStation 3 vs. Microsoft

Both Nintendo and Sony screwed up last cycle. Sony screwed up in an attempt to corner the market on next-generation DVD technology, creating a gaming system that initially cost twice as much to build as the $600 the company initial charged for it. (The market had never been that excited about products that cost over $400.) Sony did bring out a system that was advanced enough to remain technologically viable for over five years, but it took such a big cost hit early on that it nearly sank the company.

Nintendo took the other extreme. It brought out a system that could sell profitably for less than half of what the PS2 was priced at, but it was almost immediately out of date. It couldn’t even support HD programing, and HDTVs were replacing SD in massive numbers. To make the Nintendo strategy work, they needed to update their console more quickly so it remained current and find a way to move the gaming content with them.

Microsoft was neither as far advanced as Sony with the Xbox 360, nor as far behind as Nintendo. It initially passed Sony, then took over when Nintendo stopped being a fad. Now the Xbox 360 leads the market.

Tablets and smartphones

For handheld players, game content has been moving to smartphones and tablets steadily. If you look at the revenue trend through 2011, it is wonder that the game companies have any left. And if you watch where people play the games, particularly with tablets, you see them in the same spaces where they used to play game systems: living rooms and bedrooms. You can only use one of these at a time, and the advantage of a tablet or smartphone is you can both play a game and watch TV at the same time. In a family; the family can still enjoy the TV while the kids are playing a game.

 

This is why they appear to have chewed through the casual game market first. Folks are not only playing largely casual games on these devices, they are playing them in the same places folks used to use their Wii consoles.

The opportunity for casual gaming consoles and handheld systems has nearly evaporated. Now as these platforms gain more and more performance, they’ll begin to move up market. They are already pulling from budgets that might otherwise have gone to other game systems. In the near-term future, they could fully replace them unless those systems are advanced significantly.

Looking ahead: Are consoles dead?

The Atari (which created this segment) along with Commodore and Sega platforms are long gone. Only Nintendo survived from that initial wave, and currently, they are on death watch. Sony is only in better shape because it has broader business, but the company is hardly what anyone calls health. While Microsoft can likely last forever, even the Xbox is looking a bit old. Given a choice between an iPad and an Xbox, it would appear that most continue to pick an iPad.

However, everything is relative. The right advancements and games could return excitement to this segment, and it certainly has before. I do think the days of being able to keep a console unchanged for over five years are pretty much done. Consoles will likely have to sell closer to cost and be upgraded more often to remain current and interesting, because what they are competing with is updated significantly annually.

Lessons learned

Industries tend to be myopic. While Microsoft, Sony, and Nintendo watched each other, Apple snuck in and stole their revenue, then Google slipstreamed Apple. If they had seen the threat in time, they (and particularly Nintendo) could have resourced a competitive response. Atari, for instance, stopped making consoles and instead started focusing on games alone.

In the end, this is a wakeup call. Play heads-up ball, or someone will take your ball away from you. Nintendo may not ever get its customers back, and if Sony and Microsoft don’t get a clue, they’ll likely follow Nintendo.

Few companies pull out of the kind of funk Nintendo is in, and I don’t see anything from the company that suggests it will be an exception. So yes, tablets and smartphones did kill Nintendo. They may have killed the entire segment. We should know in a couple of years.

Guest contributor Rob Enderle is the founder and principal analyst for the Enderle Group, and one of the most frequently quoted tech pundits in the world. Opinion pieces denote the opinions of the author, and do not necessarily represent the views of Digital Trends.