The Launch of the New Wii U Gaming Console

In November, Nintendo will launch its new Wii U gaming console.  The company hopes to revive lackluster gaming revenues that have resulted from the maturation of the original Wii product line, as well  as the shift to mobile gaming that has hurt the console business overall.  Kyle Orland writes in this article about Nintendo's pricing strategy.  The firm will be pricing at below cost at launch.   In some ways, we should not find that fact surprising; after all, most gaming companies price below cost at launch. However, Orland notes that Nintendo did not have to do that when it launched the original Wii.  It actually turned a profit at the start.  That proved rather unusual though, running contrary to most product launches in the gaming industry's history.

Source: Nintendo

Why do most gaming consoles sell below cost at launch?  Three major reasons exist. First, companies hope to capitalize on network effects.  They want to build the installed base quickly.  As they do so, the value to each customer grows, and the attractiveness of the console to software developers increases as well. Second, the companies hope to use a "razor and blades" model to make money.   A higher installed base of consoles brings with it higher software sales, which can be very profitable.   Third, the cost of producing a console decreases significantly over time.  Those cost decreases occur for two reasons:  economies of scale and learning curve effects.  

For these reasons, Nintendo rightfully can expect to improve console profitability over time.   Still, they will need strong launch sales to kick off this virtuous cycle.  With the explosing of mobile gaming, the question remains:  Can consoles bounce back?  Have their struggles in recent years simply been due to the usual cyclical downturn in the later years of a technological generation, or are they experiencing a permanent disruption to their business due to the emergence of attractive substitutes?

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Will Non-Experts Fuel Future Disruptive Innovation?

Highly successful entrepreneur and philanthropist Naveen Jain has published an interesting essay on the Forbes website.  Jain argues that non-experts will fuel much of the future disruptive innovations.  He challenges Gladwell's emphasis on experts in his book, Outliers.  Jain explains that the experts won't necessarily be the ones to solve some of the world's most challenging problems. 

Jain offers two main reasons.  First, he explains that experts can often be quite myopic.   Second, Jain argues that information is widely available these days, not restricted to a few experts.   Moreover, technology is moving so quickly that expertise seems to become outdated much sooner than in the past.  Here is an excerpt that describes his thinking:

The human brain, or more specifically the neo-cortex, is designed to recognize patterns and draw conclusions from them. Experts are able to identify such patterns related to a specific problem relevant to their area of knowledge. But because non-experts lack that base of knowledge, they are forced to rely more on their brain’s ability for abstraction, rather than specificity. This abstraction—the ability to take away or remove characteristics from something in order to reduce it to a set of essential characteristics—is what presents an opportunity for creative solutions.

Do you agree with his arguments? 

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