Nintendo Switch's second act
Low tech, high brow strategy
The SuperJoost Playlist is a weekly take on gaming, tech, and entertainment by business professor and author, Joost van Dreunen.
Meta, a firm that values meaningful connections between people, announced job cuts this week. It emailed affected employees, followed by CEO Mark Zuckerberg describing the layoffs as an effort to cull “low performers.”
Yikes.
It’s one thing to lose your job. It’s another to get a kick in the ass on the way out. Imagine submitting your resume only to have a recruiter figure out that you were among Mark’s latest blood sacrifice.
Speaking of low performers, to host America’s favorite sports event, the Super Bowl, the Louisiana governor approved a $17.5 million budget to bus 100 unhoused folks, under threat of arrest, miles away from the stadium. I’m no expert in logistics or real estate, but within thirty seconds on Zillow, I was able to find more than enough houses for the entire lot of them, costing around $200k each, suggesting a savings of $15 million and human dignity.
Fortunately, there were no low performers in gaming this week.
After a string of disappointing earnings calls, Take-Two reaffirmed everyone’s faith in gaming. Team Zelnick reported in-line net bookings of $1.37 billion because NBA 2K achieved over 30% growth in recurrent spending. It also confirmed GTA VI will launch on consoles in Fall 2025 followed by a PC version in 2027. Praise be.
Similarly, Supercell reported strong financial results with record underlying revenues of approximately $3 billion in the previous year, representing a 77% increase from the year before. Supercell CEO, Ilkka Paananen, expressed concerns about industry stagnation, criticizing rivals’ acquisition strategies. While layoffs continue to run rampant, the firm is hiring, having increased its workforce by 686 in 2024.
Earlier today, Sony came in with its best fourth-quarter sales for its PlayStation 5 in several years following the release of its $700 Pro edition. The firm’s gaming division reported a 16% increase in sales, up to $11.2 billion, and operating income jumping 37% to a record $787 million, driven by strong PlayStation network services and improved hardware profitability.
The PlayStation counted a record 129 million monthly active users in December (is the extra traffic why its network services were offline for a day?), and PlayStation Plus revenue increased 20% year-over-year in US dollar terms. In the absence of any news about the PS6, Sony is selling almost twice as many units as Nintendo (more below).
And, finally, AppLovin crushed it. It had a standout quarter, beating expectations by delivering $1.37 billion in sales and $848 million in profits, as its advertising technology proved highly effective at helping mobile game companies find new players—when AppLovin shows an ad, it drives twice as many game installations as competitors while costing less per user.
Don’t tell Mark.
On to this week’s update.
BIG READ: Nintendo Switch’s second act
In the wake of the recent Switch 2 announcement, questions have emerged about Nintendo’s strategic direction.
In the following, I’ll tackle a few considerations and common questions about Nintendo’s strategy. Consumers are critical, for instance, of the fact that the new device doesn’t seem to offer as much novelty as the original Switch. Similarly, investors worry that the new device isn’t going to match the same sales figures we saw with its predecessor, especially against the appearance of new rival handheld devices that may take market share from Nintendo.
To understand Nintendo’s approach and upcoming hardware release, we have to examine it from a long-term perspective. Specifically, the games industry oscillates between decade-long phases of content innovation (marked by creative risk-taking and industry consolidation) and distribution innovation (characterized by novel monetization models and market fragmentation). These transitions are often catalyzed by macroeconomic pressures that force companies to shift between prioritizing scale and efficiency. Nintendo's strategy for its upcoming Switch 2 release exemplifies this pattern as the industry has recently entered a new distribution innovation phase.
The next generation of console gaming emerges at a precarious time. Overall consumer demand is in decline, and several growth drivers are seemingly depleted. Worse, a looming trade war has the potential to negatively impact projected sales. Recent White House signals about expanding consumer electronics tariffs, combined with escalating tensions in key Asian manufacturers, threaten Nintendo's ability to efficiently supply the U.S. market. That threatens a key region for Nintendo which has historically relied for 40% of its global console sales in the United States.
The threat of tariffs isn’t an unfamiliar circumstance to Nintendo. During the first Trump administration, Nintendo adapted its supply chain during the Switch lifecycle. Despite those precarious first years, it still managed to ship over 150.9 million units globally. Even so, the current geopolitical climate creates unprecedented manufacturing and distribution complexity. But the core vulnerability isn't technical execution or market positioning. Rather, Nintendo has to navigate an increasingly unpredictable trade landscape that could impact its largest Western market.
It means that the Switch 2 enters a fundamentally different market landscape than its predecessor, making a direct sales comparison unrealistic. During the Switch's peak years of 2021-2022, Nintendo capitalized on unprecedented global circumstances to ship 52 million units. However, their current strategy focuses on platform sustainability rather than raw unit economics - a classic hallmark of distribution innovation phases. An emphasis on backward compatibility and seamless transition suggests the firm is prioritizing installed base retention and software attachment rates over immediate hardware sales. It aligns with broader industry shifts toward extended platform lifecycles and recurring digital revenue streams.
Based on current market dynamics and platform positioning strategy, Nintendo is likely to price the Switch 2 at $399. It represents a critical psychological threshold that balances premium hardware aspirations against mainstream market accessibility. At this price point, Nintendo would maintain its traditional positive margin on hardware while positioning the Switch 2 distinctly below rival premium gaming devices yet above the original Switch's launch price. It signals a meaningful technical advancement without alienating its core family demographic.
The emergence of premium handheld devices like Valve’s Steam Deck and the Asus ROG Ally, far from presenting direct competition, validates Nintendo's strategic positioning. While these devices occupy similar form factors, their positioning at $549+ price points with PC gaming ecosystems creates clear market segmentation. Nintendo has a proven ability to maintain platform profitability through strategic pricing. Nintendo’s differentiation extends beyond hardware, as its first-party IP and family-friendly content portfolio targets fundamentally different use cases than PC gaming libraries. Market data shows minimal audience overlap, with premium handheld PC users typically maintaining multiple gaming platforms. The expanding addressable audience for portable gaming ultimately creates positive spillover effects for Nintendo's ecosystem rather than competitive pressure.
The push by Sony and Microsoft into cross-platform publishing, and especially, novel revenue models like subscriptions (e.g., Game Pass) present another strategic concern for Nintendo. But gaming subscriptions are not Nintendo’s strength. Since its release in 2018, the Nintendo Switch Online offering peaked with 38 million subscribers in 2023 but has since dropped to 34 million. According to management, this is “due to fewer new releases in the past year focusing on online play,” and it sees further potential in its higher-tier Nintendo Switch Online + Expansion Pack.
However, Nintendo has demonstrated pricing power in the premium gaming segment making a full subscription pivot improbable. The company has consistently extracted full retail value for marquee titles, as evidenced by Mario Kart 8 Deluxe selling over 57 million copies with minimal discounting over its lifecycle. While subscription services drive volume-based engagement for platforms like Xbox, Nintendo's first-party IP maintains extraordinary price stability and long-term sales sustainability. The core strategic advantage lies in the firm’s ability to preserve software value rather than pursuing a subscription-driven scale.
Finally, the shift toward extended console lifecycles reflects fundamental changes in gaming platform economics. For Nintendo, the Switch's eight-year tenure aligns with industry-wide trends toward digital monetization reducing dependency on hardware refresh cycles. Nintendo's strategic focus on backward compatibility for Switch 2 suggests the company views platform longevity as core to maintaining its efficient capital deployment model. Rather than cyclical hardware releases driving growth, the emphasis has shifted to maximizing software revenue and digital engagement across extended platform lifecycles. This aligns with Nintendo's historical strength in maintaining software price resilience and high attachment rates long after the initial platform launch.
Nintendo's Switch 2 strategy provides a compelling case study of how industry leaders adapt during major industry transitions. It indicates that one of the leading game companies sees its success depends not on raw technical advancement but on sophisticated ecosystem management and distribution innovation. Their emphasis on platform continuity over technical disruption, coupled with careful price architecture and market positioning, suggests we are indeed entering a new distribution innovation phase—one where the ability to efficiently capture and preserve value across global markets will likely prove more decisive than the pursuit of pure technical leadership.
Its next device may be relatively low-tech, but its strategy is high-brow.
PLAY/PASS
Play. To celebrate the 25th anniversary of The Sims, Doja Cat and Latto joined the live stream.
Pass. No wonder Apple partnered with Sony for their VR handsets. Apple’s own designs for a Vision Pro controller are trash.
Play. When it comes to the Scrabble World Championship, the Wall Street Journal is asking the real questions.
UP NEXT
Having skipped out on DICE, I’m currently foaming with FOMO. Would it be weird to go sit in the airport lounge for my trip to GDC a few weeks early?