Nintendo today unveiled the second update to its massively successful DS video game system. What's new this time around? Bigger screens. Slimmer build. Two cameras (one inside and one outside its clamshell design). A memory-card slot. Music player. Web browser. Wi-Fi download store for games, videos, and applications. And, of course, it still plays past and upcoming DS games, such as the very popular Mario and Pokemon series.
Even before this product reboot (which will hit Japan in November and elsewhere next year), the portable gaming device had been an international hit. Nintendo has already sold 77.5 million DS systems worldwide – ahead of Sony's PSP, which has sold 41 million. One out of every six people in Japan own a DS. And it was the No. 1 selling video game system in the US this August, even beating out Nintendo's other cash cow, the Wii.
Now that the new system – called the DSi – is even more impressive, a lot of analysts are pondering: Who should be afraid of this updated handheld?
With the DSi's Wi-Fi and SD card features, Nintendo pushes further into the digital platform business. That puts it squarely in competition against Apple, which has been luring big-name studios to sell downloadable blockbuster games for the iPhone through the App Store. Studios that might have had second thoughts about manufacturing cartridges for the DS now have an online distribution channel that costs far less than if they were to sell through major retailers.
Or, Nintendo could try to replace traditional PDAs. DS titles have expanded beyond traditional games to include dictionaries, planners, how-to guides, yoga training, and brain teasers targeted at both kids and their parents. This "causal" selection could greatly expand with the introduction of the DS store.
Or, the DSi could be a shot at PSP. The new edition will be more expensive than the current DS, but still cost less than Sony's rival portable device. The PSP is also going through a redesign this winter – its big improvement will be a new screen, which is already much more visually impressive than the DS's displays.
Or, maybe brick-and-mortar stores should be fretting. Goldman Sachs analyst Matthew J. Fassler writes that the online marketplace is a "tangible early threat" to Best Buy, Circuit City, and GameStop stores. Nintendo is actually a little behind in this regard. All the big consoles and the PSP already have digital shops. But with Nintendo's large user base and better access to broadband Internet, more users will be temped away from physical stores, he says. "While content will be limited at first, we believe it will likely ramp very quickly," Mr. Fassler writes.
UBS's Ben Schauchter says pishposh. The DSi features are only a "minor" improvement, he writes, and "as such are unlikely to expand the ... user base." That doesn't mean it won't sell, but most purchases will be people trading in their old systems for new ones. "Additional functions may extend the software line-up but not by enough to further boost consumer spending," he writes. "Body size will be smaller, but not enough to change convenience dramatically."
All things considered, though, Nintendo is doing just fine. Between the DS, the Wii, and many successful games, "Nintendo makes more profit per employee than Goldman [Sachs]," according to a recent Financial Times article. "Before tax and before pay, the average Goldman employee generated $1.24m in profit last year, based on the company’s accounts. But after Nintendo upgraded its earnings forecast recently, the FT estimates each staff member will produce more than $1.6m in profit this year." Doing just fine, indeed.