Millions of kids—and parents—won’t have a Wii under the Christmas tree this year. What’s strange is that they suffered the same fate last year. Nintendo’s hot game console is still suffering shortages some 13 months after it was introduced in the US. This isn’t a case of Santa’s elves adopting inferior Soviet production methods. It is more likely a case of the Japanese group manufacturing a bit of buzz.
Nintendo denies the shortage is intentional. Perhaps, but manufacturing electronic devices usually scales up easily. The company has almost doubled production to 1.8 million a month. Further increases should have been simple enough for the relatively unsophisticated device. And it’s difficult to recall any gadget whose shortages lasted for more than a few months, let alone more than a year.
Whether intentional, not, or somewhere in between, the shortage has benefits for Nintendo. It’s rather odd, but scenes of parents rioting over Wiis only seems to encourage children to ask for, and parents to resort to, more desperate measures. Any other gift, even more expensive consoles from Microsoft and Sony can’t measure up. And few “must have” holiday gifts are eagerly sought two years in a row. This buzz undoubtedly persists after the tinsel has been taken down. It’s telling that the retail price of a Wii remains stubbornly high while rivals slash theirs.
There is a cost. Nintendo is forgoing perhaps $1 billion (Rs3,960 crore) worth of console sales this holiday season according to analysts. Unlike its rivals Sony and Microsoft, it actually makes a small profit on selling these machines. The real cost, however, lies in future margins. Nintendo is missing a chance to lock customers into its platform and could see them defect to the Xbox 360 or PlayStation 3. And games are far more profitable than consoles. The company’s margins average around 10% on hardware and around 70% on software. So more than three quarters of profit comes from software over a multiyear gaming cycle. If customers defect, Nintendo’s shortfall will look like a gigantic blunder.