Nintendo's 3DS midlife crisis: Can Mario protect it from mobile?

The company dominates among handhelds dedicated to gaming only, so its biggest challenge remains keeping the 3DS relevant in the smartphone and tablet era.

Gaming
As Nintendo's 3DS handheld approaches its fourth birthday, mobile gaming is as big a threat as it's ever been. Dave Cheng/CNET

As Nintendo's 3DS enters its fourth year on the market, it faces a nagging question: how many people really need a specialized handheld game system in the age of ubiquitous smartphones?

The Japanese game maker has struggled to recapture the success it once had with its previously made DS handheld and its Wii home video game console. The two devices, released in 2004 and 2006 respectively, are considered among the most successful gaming devices ever made. They've also set a high bar for Nintendo to beat.

So far, Nintendo has failed. The company's followup Wii U video game console, launched in 2012, has chronically missed sales expectations. Its 3DS handheld, launched 2011, had a rocky launch but is now considered a buoy for the otherwise struggling company.

On Wednesday, Nintendo said it will release its second revision of the handheld in North America in February, after releasing it in Japan last October. Notably, Nintendo is releasing only the 3DS XL in North America, while a smaller, standard 3DS will accompany the larger model in Europe, as is the case in Japan.

The company's biggest challenge is trying to sell new devices in the time of tablets and smartphones and the mammoth success of titles for them like Clash of Clans and Candy Crush Saga. Analysts say Nintendo's software, typically $40 apiece, is becoming a hard sell.

"The business morphed from the only way that any young person could play a video game into one of many choices for young people who are just learning how to play games," said Michael Pachter, an analyst with Wedbush Securities. Those choices, Pachter added, include the Amazon Kindle, the Apple iPad and Samsung's Galaxy tablets. The devices we carry in our pockets every day also happen to be proficient game devices, even if they do double as phones, GPS units and many other things as well.

Nintendo may dominate the handheld gaming device market, but almost any gadget with a screen these days can play games. Sarah Tew/CNET

Now, the 3DS is slowing down, he says, and it's no surprise. Sales of the device have dipped from nearly 7 million units in the first nine months of 2011 to just over 2 million in the same time last year.

Lifetime sales of the device aren't much more encouraging. The 3DS has only sold 45 million units since its launch; its predecessor sold 85 million in the same time frame. Of course, smartphones didn't really exist for the first three years the original DS was on sale.

Nintendo's answer: Incorporate cutting edge tech in the 3DS to compete against the new whiz-bang smartphones. Among its newest features is an improved 3D screen technology that tracks a customer's face to ensure the illusion works from many angles, something Amazon CEO Jeff Bezos tried and failed to popularize with his company's ill-fated Fire Phone.

The company also stuffed new wireless chips called NFC (near-field communication) into the device as well. That wireless tech will work with the company's Amiibo figurines, a brand of toys designed to interact with software on the screen.

This isn't a new strategy. The company launched its eShop game download store on the 3DS in 2011 following the success of Apple's App Store.

There's one change to its strategy that Nintendo executives still won't do: Bring classic games to iOS or Android. The 3DS in many ways owes its success to the games that customers can play only on it: franchises, like Pokemon, Super Mario Bros. and The Legend of Zelda.

"There is only one place to play those things. You can't play them as mobile games or on a tablet," Scott Moffitt, Nintendo of America's executive vice president of sales and marketing, said in an interview. "Content drives it all."

Nintendo now controls more than 85 percent of the gaming handheld market, Moffitt said, citing industry research firm NPD Group. Though that doesn't include smartphones.

Despite its struggles, Nintendo says it isn't worried. Gamers might play a game or two on their smartphone, Moffitt said, but when they have the time to play a game designed specifically for a handheld, "there is no substitute" for a Nintendo.

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