Years ago, way back in 2011, Apple’s Steve Jobs held a press conference during the Game Developers Conference in San Francisco. As Jobs was showing off the iPad 2, Nintendo’s then-CEO Satoru Iwata was giving a keynote speech at the GDC. The overlap was no accident, as Apple felt competitive with Nintendo in the nascent days of the mobile games business.
Eight years later, the competition between these frenemies is even sharper. If you look at these companies in the light of the day, they don’t seem to compete with each other, as Apple makes smartphones and tablets and Macs, while Nintendo makes consoles and games. But in the shadows, it feels like they are at war. The games business is very important to both of them, and the impending launch of the Apple Arcade game subscription business at just $4.99 a month is a pretty big clue that the two companies have real competition between them.
Let’s say that Apple and Nintendo decided to go to war with each other in the battle of the cartoon games. Until this week, you could say that was a theoretical battle, as Apple really needs Nintendo and its mobile games like Mario Kart on its side to compete against the likes of Google and Samsung. But with titles like Frogger in Toy Town, Apple seems clearly focused on the family titles that Nintendo makes.
Nintendo has the mighty Switch, a game console that has sold more than 37 million units. Apple, on the other hand, has sold more than 2 billion iPhones, iPads, and Apple TV units. You can play games on all of those devices. The latest $329 iPad with a 10.2-inch screen is a pretty good game machine, particularly if you use it with a game controller. The Nintendo Switch with its 6.2-inch screen is $300, and it costs more with the right accessories.
Surely, we jest?
When you think of all of the great game brands and characters that Nintendo owns, including Mario and Zelda, it’s clear that Nintendo has an incredibly valuable set of intellectual properties in games. Apple doesn’t have anything. It is quite possible that a single Nintendo game, if it is built right and is of the highest quality, could generate more revenue than all of the Apple Arcade games put together.
If you said that Nintendo is the bigger company when it comes to revenues from games, that might sound reasonable. But you would be wrong. Market researcher Newzoo estimates the revenues of publicly traded companies in the game business. For 2018, Nintendo’s game revenue was $4.3 billion, up substantially from $3.2 billion the year before.
But Apple gets money from its 30% take of App Store revenues. So it generated $9.5 billion in revenues in 2018, up from $8.08 billion a year earlier. That does not include hardware-related revenue from people who are buying iPhones, Apple TV boxes, and iPads for the primary purpose of playing games. Nintendo’s revenue includes the revenue it makes from 3DS and Switch hardware.
Why this war won’t happen
Let it be known that I’m shooting down my own straw man.
Apple has bigger fish to fry than Nintendo. It has to compete with Google (which has its own Stadia cloud gaming business coming), Qualcomm, Samsung, and many others in the mobile ecosystem. In fact, if Apple’s devices were perceived as just game devices, that would hurt its market share and brand image. Gamers would buy its stuff, but nongamers wouldn’t. That has always been a risk for Apple.
It could move deeper into games with Apple Arcade. It is funding titles from more than 100 developers as part of its effort to get them to develop games for its subscription service.
Let’s not start a rumor about Apple buying Nintendo. Repeat. Let’s not do that. Lots of people have already lost money in the stock market betting that is going to happen.
But Nintendo is valued at $45 billion in the stock market. Apple is valued at more than $1 trillion. If Apple wanted to crush Nintendo as a competitor, it could do so very easily. It could buy Nintendo many times over. Apple could also go a step farther in the competition and buy a bunch of game companies and make its own games. Apple could buy just about everybody in the game industry and use them to flood the market with cartoon games that could drown Nintendo.
But that’s also not going to happen. If Apple did that, it would violate a lot of trust with the other game developers who put their games in the App Store. That 30% revenue cut would be vaporized if Apple started competing with its own developers, and they took their business elsewhere, to other stores. If Apple took these drastic steps to destroy Nintendo, it would destroy more value than it gains. It’s like that old Vietnam War adage, “We had to destroy the village to save it.”
And Nintendo is a reasonably nice company with a great gaming legacy. Nobody should want to destroy it. Still, I like going through this exercise. It’s like a “tastes great, less filling” argument that fans on both sides could get very passionate about. It’s also nice to compare the market value and revenues of an iconic gaming company, and to see how it is dwarfed by something like Apple, which is even more iconic.
Back in 2011, Iwata was aware of the potential threat from Apple, and he cautioned against the practice of giving away games — or any content — for free, as it would devalue that content. Indeed, if Apple gave away games for free, how could Nintendo compete? Fortunately, game companies like Nintendo learned how to survive in the overcrowded and underpriced “free-to-play” and app store world that Apple helped create. And Apple came to learn the value of investing in content, as it is doing with Apple Arcade.
I think another point is that companies don’t compete against just one rival. And things like antitrust laws and other competitors stop them from using all of their firepower to destroy that single rival. Apple and Nintendo are frenemies, and not even Apple Arcade is going to upset that balance.