Why Apple Should Not Buy Nintendo

They really shouldn’t. I want to set expectations up front, and when you’re talking about either Apple or Nintendo, people (myself included) are going to have Opinions. But let’s back up a bit first.

The ideal

A good merger is one where the whole is greater than the sum of its parts. By that, I mean that the two companies coming together amplify each other’s strengths and compensate for each other’s weaknesses.¹ The best mergers will emphasize the second more than the first.

Let’s look at the Apple-NeXT merger in 1996 as an example of a successful merger. NeXT was a small company that made what they considered to be the best operating system in the world, NeXTSTEP. Their computer, the NeXTcube, was used for a variety of advanced computer uses, most notably by Tim Berners-Lee to create the first web server and web browser. They also had Steve Jobs, arguably one of the best business leaders in the industry. By 1996, though, they had dropped their hardware division and were only selling their software to run on conventional PCs as a replacement for Windows.

Apple at this time was in trouble. They made what they considered to be the best computers in the world, but they were lagging behind in the software race. They had tried and failed to develop their own modern operating system, and were in serious danger of losing the personal computer market to Windows 95. Their management was unfocused and unable to bring the different factions within Apple to work together.

Apple and NeXT shared the common goal of making the best products they could. NeXT had a solid operating system but couldn't convince people to give up Windows to use it. Apple had strong hardware but their software hadn't evolved enough to take advantage of that hardware. At its core, the merger brought the two companies together on their common goal, with Apple supplying the hardware NeXT needed and NeXT supplying the software and management Apple needed.

The end result? The immediate change with Apple was the influx of good management from NeXT, particularly Steve Jobs. The software team at Apple immediately began work on newer versions of the existing Mac OS (versions 8 and 9) that bought Apple enough time to get the new, NeXTSTEP-based Mac OS out the door as Mac OS X. The advanced operating system not only improved performance on Apple's existing hardware, but allowed them to switch to a completely different type of hardware when they needed to. On top of that, OS X was versatile enough that Apple would eventually use it to power the iPhone and iPad.

Over 15 years later, that $400 million investment is still paying off. That's a good merger.

The reality

So where are Apple and Nintendo today? What are their strengths and weakness that would make-or-break our hypothetical merger?

The Apple of today prides itself on a--dare I say it--magical marriage of hardware and software. The design ideal is that when you see their work, whether hardware or software, it is beautiful; but when you need to actually do work, the hardware and software become almost invisible compared to what you are doing.

However, Apple has traditionally not been good at games. Not many people know of their attempt at making a game console with Bandai, and for good reason: it wasn't good. Gaming on the Mac has always been a second-class citizen, and companies like Valve have only begun targeting the Mac in the past few years. Games are very popular on iOS devices, but those games are not significantly tied to iOS itself. As Ben Thompson writes:

• Games take over the whole screen; this means that tailoring a game to fit a particular platform’s look and feel isn’t important
• There is an entire industry devoted to providing cross-platform compatibility from day one. Most game developers are targeting game engines such as Unity, not iOS or Android. This is acceptable because of point one

Nintendo is committed to making the best gaming experiences possible, then making them better. In the past, this has led them to create some of the most beloved franchises in the video game world, including Super Mario, Zelda, Kirby, and Pokémon. In recent years, this has meant pursuing new hardware: not only the gyroscope for the Wii and the touchscreen for the DS but also things like the DK Bongos for the GameCube, the microphone for the DS, and the stereo camera on the 3DS. For every hardware feature Nintendo releases, there is a game like Wii Sports, WarioWare, or Donkey Konga designed specifically to get the most fun from that feature.

The current Nintendo is a victim of a changing landscape. They lost mindshare and marketshare of hobbyist² gamers to Sony and Microsoft, and their (smart) response was to pursue the mainstream market with the Wii and DS. This strategy paid off until iOS and Android devices began capturing mindshare and marketshare in the mainstream with free-to-play casual games among other benefits. Their efforts to woo both markets with the Wii U and 3DS have been decent, but some worry it won’t be enough to keep the company around.

The dream

So what happens if we bring the two companies together? Let's assume for the sake of argument that Apple uses some of its cash horde and buys Nintendo outright.

From day one, Apple has a large library of exclusive games for its platform, games that are fun and that people want to play; and Nintendo is essentially guaranteed a place in the new smartphone world. Nintendo can, with some effort, create versions of classic games from its library for iOS, accessable to a massive audience that would easily pay the current asking prices of $3-5 each. These games would obviously not be available for any other smartphone or tablet platform, increasing the value of iOS both to consumers who want to play Nintendo games and to developers who want to reach those consumers.

Going forward, Nintendo can help Apple to move its platform forward much like they have with their own platforms in the past. Possibilities dreamed up by the iOS platform team can be made concrete by Nintendo's game team. Both companies thrived in the past by pushing the integration of hardware and software, and having both companies push each other could bring out the absolute best in both. If Apple does release an app-capable Apple TV as rumored, a library of Nintendo games would only help sell the device.

Let's not leave hardware out of the equation. A Jony Ive-designed game console would be great for publicity, but Nintendo could gain more immediate benefits from Apple's supply chain. Apple has incredible buying power when it comes to quality components, especially solid-state storage and touch screens. A (relatively) quick update to the 3DS and Wii U touch screens would elevate the quality of those devices, and that is an area that Apple has made itself an expert in.

This, of course, assumes there are no cultural issues with the merger. Part of what made the Apple-NeXT merger so successful was the understanding that NeXT management was essentially taking over Apple. If the hardware or software teams at the two companies aren't able to find common ground with each other, the best talent could walk out the door and the resulting company would be far worse off than either company would have been separate. This could be a moot point; desperation on either side has a way of forcing compromise where it wasn't thought possible.

But that's not why I think it wouldn't work.

The problem

The best mergers amplify shared strengths and compensate for weaknesses. The worst mergers amplify shared weaknesses. And Apple and Nintendo share a similar weakness: online services.

One of Apple's biggest competetors moving forward is Google. Google was born on the web, and as such, Google understands the web on a near-instinctual level. Servers talking to servers talking to phones is a beginning requirement for a product, not an idea tacked on halfway through the process. More importantly, they know how people use the web. They know how many people leave if search slows down less than half a second. They know how to give users email, file storage, online document editing, and keep it all in sync. Apple's previous online service, MobileMe, was not well received. Their new service, iCloud, is an attempt to modernize the service and make it more reliable, but the reality falls short of the ideal.

One of Nintendo's biggest competitors moving forward is Microsoft. The Xbox is a powerful game machine on its own, but its biggest strength is the Xbox Live service. Every Xbox Live game ties into the same online infrastructure, allowing individual players to define their friends once (using easy-to-remember names) and play with them in every game. This is something Microsoft has fought for from the beginning of the service. Most importantly, the interactions and purchases in Xbox Live are defined around people. Contrast this with Nintendo, which bases its interactions around devices. Social connections are made by exchanging device-specific friend codes which have all the joy and personality of 16-digit phone numbers. Purchases and friend lists are device-dependent, so replacing a console outside of a warranty repair means losing your entire library of downloaded games.

Knowing all this, how appealing does it sound to know that the company that brought you MobileMe is merging with the company that brought you friend codes?

To be fair, both Apple and Nintendo are learning in this area. Apple's iCloud service is getting better, but it will be some time before developers (and their users) begin to trust the service. Nintendo is slowly making improvements to their online service, but they would still rather shut down a service than see it misused.

Both companies, still approach the internet the same way they approach products: slowly and deliberately. This often leads to them missing a crucial component of what their customers actually want. A merger would make this worse, not better, as companies (just like people) lean on what they know during times of transition. A merger would deny both companies the opportunity to truly learn and understand online services in the modern, connected world.

Which stinks because I really want to play Pokémon on my iPhone.