Diffusion and the Meteoric Rise of the Nintendo Switch
The Nintendo Switch’s 23-month streak (the longest streak ever) as the best-selling videogame console is a testament to how, when it comes to product design and marketing, the smallest details can make a butterfly effect of a difference. Its performance in the market was unanticipated upon its initial launch – the Switch was widely received as not particularly inspiring or innovative, not very different from the WiiU (a console previously launched by Nintendo that did poorly in the market), and didn’t seem to offer much else that a smartphone couldn’t already do. Tsunekazu Ishihara, the CEO of the Pokémon Company, predicted it would be a failure. To some extent, its roaring success could be chalked up to lucky timing. With people cooped up at their homes under quarantine, it makes sense that people would turn to other forms of entertainment, and gaming is a convenient solution for this.
But, as of last year and now, one more important lesson has been learned: great software drives hardware sales. For the purposes of this class, we will be discussing the Animal Crossing: New Horizon (2nd best selling, and very close to best-selling title Mario Kart 8 Deluxe) and its contribution to the Switch’s rapid diffusion in the market. I was particularly blown away by how hard the frenzy hit my Asian community, and public Facebook groups, like Subtle Asian Traits – characterized by low cluster densities, may play a key role in this.
Suppose everyone in a small novice gaming group on Facebook (Cluster X) plays games on their phone – we will call this technology B. There might be two people in the network who discovers and purchases the WiiU and a game alongside it. This network is pretty interconnected, with a density of 2/3, and a standard adoption threshold q, of 1/2, and technology A (gaming on WiiU) spreads to the entirety of the cluster. I am friends with one person (friend v) from another, slightly bigger Facebook group (Cluster Y) of density 2/3, all using behavior B, and I am the only link to that cluster. That friend has 2/3rds of its neighbors in the other cluster – that is, it has a 2/3rd fraction of its neighbors in the set. That 2/3rd fraction is using technology B, which is greater than the 1/2 threshold of adoption for A, so the cascade stops. There are two conditions that can be fulfilled at this point to get technology A to really take off.
The first condition is to create a higher payoff for the adoption of A. In a networked coordination game between friend v and any one of its 3 neighbors (friend w), the payoff if both adopt technology A is 3, and the payoff if both adopt B is also 3. Friend v will stick with mobile gaming for a total payoff of pdb (2/3 * 3 * 3 = 6), over a WiiU gaming total payoff of (1-p)da (1/3 * 3 * 3 = 3). Throw in a pair of detachable consoles that lets you play with friends (+1 payoff to A), a wider variety of great titles (+1 to A), and an ad-free social game that lets you create and interact with friends long-distance over quarantine (+2 to A), and you have the Nintendo Switch. The total payoff for technology A now jumps to 1/3 * 3 * 7 = 7, and friend v changes to this technology – now, this effect is likely to cascade throughout the rest of the cluster.
The next condition, which may also be fulfilled through the payoff-increasing specs for the improved technology A, is targeting or having a neighbor in low-density clusters, like large public Facebook groups. One example I mentioned here was Subtle Asian Traits. It doesn’t take a lot of friends who know about this group for you to join it, and by that nature, some users may only have 1 or 0 friends also in that group. For the purpose of argument, lets say everyone has at least 5% of their Facebook friends in Subtle Asian Traits – a cluster density of 1/20. If friend v happened to be in this group instead, they would end up adopting technology A, as the proportion of its friends that are using A (19/20) is much higher than the 1/2 adoption threshold for A. This effect is likely to cascade throughout the rest of this gigantic cluster.
Though these models are crude (as in, there were probably more initial adopters in Subtle Asian Traits than in the example I mentioned), it is interesting to see the way it illustrates how little changes in strategy and conditions (i.e. the pandemic) can cause such an explosive market effect.
Sources:
– https://www.cnbc.com/2020/06/02/nintendo-switch-animal-crossing-and-coronavirus-led-to-record-sales.html
– https://www.businesswire.com/news/home/20201112006127/en/Nintendo-Switch-Achieves-Its-Best-October-Sales-to-Date
– https://www.fool.com/investing/general/2013/10/30/3-reasons-the-nintendo-wii-failed.aspx