Why the Nintendo Switch 2 is Unlikely to Repeat the Mistakes of the Wii U

The gaming industry is abuzz with anxiety about the Nintendo Switch 2, driven by concerns that the company may be doomed to repeat the mistakes of the past. However, a closer examination of Nintendo's history reveals that this narrative is not entirely accurate. While it is true that the company has experienced fluctuations in success, its handheld business has consistently been robust, with the Nintendo 3DS selling half as many units as the DS, but still performing reasonably well. In contrast, the company's home console sales have been in decline for decades, with each generation selling around 10 million fewer units than the previous one, except for the anomalous spike of the Wii. The Switch, which combines elements of both handheld and home consoles, has been a game-changer for Nintendo, and its portability is a key selling point. Looking at historical data can only take us so far, as the gaming industry has undergone significant changes since the Wii U era. The confirmation of backwards compatibility for the Switch 2 is a crucial factor in its potential success, as it has become an essential feature in the modern gaming landscape. According to former Sony boss Shawn Layden, the differences between consoles are now so small that 'only dogs can hear them.' This shift in consumer behavior, combined with the rise of digital and live service games, means that gamers are no longer eager to upgrade to new hardware every few years. Instead, they are happy to play titles that are ten years old or more, and they expect to be able to take their game libraries, DLC, and progress with them to the next generation. This poses a challenge for console manufacturers, as convincing players to upgrade is becoming increasingly difficult. However, it also means that audiences are more likely to stick with their preferred ecosystem, rather than switching platforms. Nintendo's decision to make the Switch 2 backwards compatible is a wise one, as it will help the company to retain its existing audience and attract new players. With 127 million annual playing users, Nintendo has a significant addressable market to tap into, and the company is well-positioned to build on this success. The inclusion of backwards compatibility will also increase competition for new game sales, as thousands of older titles will be playable on the platform from day one. However, Nintendo is taking steps to address this challenge, including expanding its internal development resources and partnering with third-party teams to create new games. While the company still faces challenges, such as lengthening development schedules and dependence on its own games, it is well-placed to succeed in the modern gaming landscape. The COVID-19 lockdown boost, which saw millions of people turn to gaming during the pandemic, is unlikely to be repeated, but Nintendo does not need to sell 150 million units of the Switch 2 to be successful. The company's digital business is still in its early stages, but it is growing steadily, and the launch of new online offerings, such as the Nintendo music app, has the potential to increase recurrent consumer spending. Overall, while it is too early to make a judgment call on the Switch 2, the inclusion of backwards compatibility and the company's commitment to digital development are reasons to be optimistic about Nintendo's financial future.