The Console Game industry's dilemma

Clayton M. Christensen made himself very famous and rich by writing a book called "The Innovator's Dilemma". In it, he points out that established companies can continue innovating by focusing on the needs of their very best customers, but are vulnerable to upstarts who make something worse, cheaper, but good enough for everyone else. At this point, if the market cannot absorb new technology as fast as the incumbent can produce it, it does not matter how great the incumbent is at making new stuff, they will see more and more of their business go to the "good enough" and cheaper competitor.

Nintendo has clearly been reading this book. I think they've concluded that their entire industry has been "captured" by the hardcore gamer, and that the general games playing audience cannot absorb more polygons and harder levels as fast as the console makers and pumping them out. Certainly game designers have not been able to use these more powerful consoles to make games that are dramatically better than those produced 10 years ago.

This article makes the case well:

Our games grew so complex they became intimidating, further polarizing players and non-players. Market revenues have sagged in the U.S. for the last two years, and in Japan for six of the last seven. The industry just endured a disappointing holiday season and studies show that non-hard-core gamers are playing less frequently.

Our player pipeline is also shrinking. U.S. Census Bureau data indicate that currently the number of 5-to-9 year old boys in America is 8% smaller than their 10-to-14 year old big brothers. Despite dramatic gains in graphical realism in four generations of console platforms, we haven't grown our penetration rate beyond about a third of all American homes. Yes, more people meant more sales, but in relative terms, we haven't succeeded in becoming more popular.

Nintendo's counterpunch is disruption. We've determined that the videogame market is ripe for revival—and we're looking to make it happen by reaching out to the millions of players still on the sidelines, including those over the age of 35.

Early moves have been promising. Nintendogs, a game that allows people to train virtual puppies, has doubled the typical percentage of female purchasers, selling 1.5 million copies in about four months. Not bad, given that Nintendo DS hardware is in 4 million hands. In Japan, a pair of games designed to refresh and renew brain activity won over millions of people who previously associated videogames only with their grandkids.

Duh. The article itself mentions Christensen in third paragraph. Oh well.