Nintendo on mobile ‘is an earthquake that will change the entire games industry’

Nintendo caved.

Early this morning, publisher made the surprise announcement that it is partnering with mobile gaming company DeNA to produce original apps for smartphones and tablets. These games will bring Nintendo brands and characters to new platforms. This is huge news, and it is already having ramifications. The company’s stock price is up big today as Wall Street celebrates Nintendo finally embracing mobile-gaming market — which could hit $30 billion this year, according to research firm Newzoo.

This is huge news that could change what the future of the industry looks like.

“I really think there is gaming before and after March 17, 2015,” analyst and consultant Dr. Serkan Toto told GamesBeat. “This is probably the biggest news in gaming in recent years. Nintendo doing mobile apps is an earthquake that will change the entire games industry, globally.”

A new hunting ground

Toto attended Nintendo’s and DeNA’s joint announcement event, and he tweeted out information as it was breaking. He said that he’s never seen such a huge response to gaming news before on social media.

“For Nintendo, this move means that they are caving in,” he said. “But that is OK. They have been publicly downplaying the importance of mobile and looking down on that market for over five years. But it’s clear now that they were at a point where they were forced into this about-face.”

Piers Harding-Rolls, the director of games research at intelligence firm, IHS agrees. He says that Nintendo came to its senses.

‘Nintendo’s decision to partner with DeNA is a recognition of the importance of the games app audience to the future of its business,” said Harding-Rolls. “Not only is there significant revenue to be made directly from smartphone and tablet consumers for Nintendo, app ecosystems are also very important in reaching new customers to make them aware of the Nintendo brand and to drive a new and broader audience to its dedicated console business.”

IHS’s data claims that downloadable game apps made $26 billion in 2014 but that dedicated handheld software — like the 3DS — only made $3.3 billion. By partnering with DeNA, Nintendo can keep raking in that handheld money while simultaneously creeping into the mobile space.

The odd couple

“This alliance makes commercial sense on many levels,” said Harding-Rolls. “The main challenge will be knitting together the cultures of both companies and aligning the speed of development and iteration that is needed in the mobile space with Nintendo’s more patient and systematic approach to games-content production.”

Nintendo and DeNA may also run into issues with how these new mobile games make money. Iwata has already expressed that its app will not use certain mechanics that are popular in Japan and are great at extracting money from players.

One example is the virtual gacha machine, which is named after those coin-operated toy-dispenser machines that spit out plastic capsules filled with goodies that you might see at the grocery store. Mobile publishers have used these to coax players to spend money on the chance that they may get the character or item they want. Nearly every game on DeNA’s Mobage platform use this. Nintendo doesn’t like it. Hell, even the Japanese government doesn’t like them. It stepped in to regulate this monetization technique in 2012 to eliminate a particular implementation of the concept that forced players to collect an entire set before being able to get a specific — and often powerful — piece of kit.

But the Japanese government aside, Nintendo and DeNA are both in a situation where they cannot get to picky with how they make money. Each company has failed to keep up with competition, and they are in this partnership to do something about that.

They need each other

“Despite big investments in smartphone-game development and international expansion, DeNA has struggled in recent years,” IHS mobile media research head Jack Ken said. “Its initial success was based on developing mobile web games for Japanese mobile social-games community, as the market has shifted toward native smartphone games, it has been overtaken by domestic competitors such as Puzzles & Dragons publisher GungHo.”

DeNA is No. 8 in terms of the top-grossing mobile publishers in Japan, according to App Annie. It doesn’t rank in the top 10 worldwide.

Nintendo has had similar issues.

“The 3DS is aging quickly, and the Wii U is a lost cause, and their new quality-of-life business unit failed to attract interest,” said Toto.

But now Nintendo has embraced mobile, and it’s here to rescue the publisher. Right? Well, that’s not guranteed.

“It can be argued that Nintendo was too slow to mobile,” said Toto.

“[Nintendo and DeNA] first discussed a partnership as far back as 2010,” said Kent. “Now, five years later, there is a risk that despite the benefits each party brings, it could be too late to take full advantage of their strengths.”

As always, it will come down to the games. Normally, that’s something that I think no one would doubt Nintendo could handle. But mobile gaming is different than what the House of Mario has done for the last 30 years, and it’ll need to learn about free-to-play, user acquisition, and games-as-a-service techniques from DeNA.

That’s the only way this partnership will really pay off.