Microsoft Xbox Takes Lead From Wii, And Nintendo May Not Get It Back

There is growing evidence that the Nintendo Wii, which dominated game console sales for nearly three years, is losing market share. That position has been taken by the Microsoft (NASDAQ: MSFT) Xbox 360. The Xbox has added so many popular features that the Wii may never get its No.1 position back.

The drop in Wii market share began nearly a year ago, based on research from firms including NPD, a major tracker of video game sales. Microsoft and PS3 maker Sony (NYSE: SNE) slashed the prices of their consoles which made them more attractive to consumers who played games occasionally and casually. That territory had belong to the Wii.

The FT reports that “analysts at Wedbush Morgan Securities expect sales of 1.075m Xbox 360 consoles in November, up 31 percent on a year ago, compared with 975,000 Wii sales, down 23 percent. They expect 650,000 Sony PlayStation 3 units sold, down 8 per cent year-on-year.”

The change is probably due to new features for the Xbox which includes a motion sensor, camera, and other new features for a related Microsoft product called Kinect. Kinect has sold out in some markets, a sign of its surging popularity.

Nintendo will cut the price of the Wii and will add new games to its line-up. That may not do much to allow it to match the innovations in the Xbox which was early to add high-definition content playback and internet-based games which allow people from around to the world to compete with one another in “real time”.

The Ninendo challenge is an example of what happens to many highly successful companies which base their growth on one or two products. The Japanese firm’s trouble in like the one that faced Motorola (NYSE: MOT) several years ago. It RAZR handset sales were so strong that the US corporation became the No.2 handset company in the world, behind Nokia (NYSE: NOK). Motorola was not able to follow-up with a new handset, and it nearly went out of business. The most powerful example of a company which rolls out one innovative product after another is Apple (NASDAQ: AAPL) Nintendo apparently learned nothing from either Motorola or Apple case studies.

Nintendo will have to rapidly upgrade and update the Wii. Microsoft has spent years and billions of dollars to move into the video game console field. Many investors do not see how the game division fits with other Microsoft businesses and why the world’s largest software company finds it necessary to take the risk of maintaining a consumer electronics platform. That hardly matters to Nintendo.

Douglas A. McIntyre