Reggie Fils-Aimé Says Nintendo Stopped Selling To Amazon After Being Asked To Break The Law

The Rocky Start: How the Nintendo DS Shaped Gaming and E-commerce Rivalries

A recent discussion at New York University (NYU) has brought to light an intriguing theory: the often-tense relationship between major gaming companies and huge online retailers might have started way back with the Nintendo DS. This isn't just about selling games; it's about who controls the market, how games are delivered, and who gets to decide the price. It's a story of shifting power dynamics, innovation, and sometimes, outright competition that began nearly two decades ago.

For a long time, video games were bought almost exclusively in physical stores. You walked into a GameStop, a Walmart, or a local electronics shop, picked up a game box, and took it home. Then came the internet, and with it, the rise of e-commerce giants like Amazon. These companies started selling everything online, including video games. This created a new kind of interaction – or often, friction – with the established gaming industry. The Nintendo DS, a groundbreaking handheld console, was right at the center of this early evolution, providing a fascinating case study for how these two powerful industries began to both rely on and compete with each other.

The Nintendo DS: A Catalyst for Change

Launched in 2004, the Nintendo DS wasn't just another handheld device; it was a phenomenon. With its unique dual-screen design, touchscreen capabilities, and a library of incredibly popular games like Nintendogs and Brain Age, it sold over 154 million units worldwide. It brought gaming to a wider audience than ever before, including many who hadn't considered themselves gamers. This massive popularity meant a huge demand for its games and accessories, creating a golden opportunity for both traditional retailers and the emerging e-commerce platforms.

At its core, the DS relied on physical cartridges. Players needed to insert these small game cards into the device to play. This made it a perfect product for online sales. Websites like Amazon and eBay quickly became essential channels for consumers to buy new DS games, often at prices that brick-and-mortar stores struggled to match. The convenience of having games delivered directly to your door, especially for pre-orders or hard-to-find titles, was a major draw. But this convenience came with its own set of challenges for the gaming industry.

The Rise of Online Retailers and Their Early Impact

Before the internet, game publishers and console makers had significant control over pricing and distribution. They would sell their games to major retailers, who would then sell them to customers at a recommended price. E-commerce disrupted this system by introducing unprecedented price competition. Online stores, with their lower overheads (no need for expensive retail space or as many sales assistants), could often afford to sell games at a slight discount, or even at cost, to attract customers. This led to "price wars," where various retailers would undercut each other to win sales.

For Nintendo and its game developers, this meant less control over the perceived value of their products. If a new game was launched at $39.99, but online retailers immediately dropped the price to $34.99 or even lower, it could make the official launch price seem inflated. While consumers certainly benefited from these lower prices, it created a tension with the game makers who wanted to maintain strong profit margins and avoid their products being seen as commodities that could be easily discounted.

Another major factor introduced by e-commerce was the booming market for pre-owned games. Platforms like eBay made it incredibly easy for players to sell their old DS cartridges once they were done with them. While this was great for consumers looking to save money or clear out their collections, it became a huge headache for publishers. They saw no revenue from these second-hand sales, which they argued cannibalized sales of new games. This debate over the used game market, fueled largely by the efficiency of online marketplaces, was one of the earliest signs of the "unstable relationship" the NYU lecture highlighted.

Gaming Giants Begin to Fight Back: The Shift Towards Digital

The gaming industry quickly realized that relying solely on third-party retailers, whether physical or online, put them at a disadvantage. They wanted more control over their products, their pricing, and their relationship with the customer. This realization sparked a major shift towards digital distribution – selling games directly to players through their own online stores.

While the Nintendo DS primarily used physical cartridges, it also made an important, albeit cautious, step into digital downloads with the DSiWare service. Launched in 2008 for the Nintendo DSi (an updated version of the DS), DSiWare allowed players to download small, inexpensive games and applications directly to their console. This was a significant moment. It showed that console makers could create their own digital storefronts, bypassing traditional retailers entirely. While DSiWare was limited in scope compared to what came later, it was a clear signal of intent from Nintendo and other platform holders.

Building Walled Gardens: The Rise of Proprietary Digital Storefronts

The success of DSiWare paved the way for more robust digital platforms. When the Nintendo 3DS (the successor to the DS) launched, it featured the Nintendo eShop, a full-fledged digital store offering a wide range of downloadable titles, including full-priced games. Sony’s PlayStation Network (PSN) and Microsoft’s Xbox Live Marketplace also grew exponentially during this period, offering digital versions of their console games. On PC, Valve's Steam platform had already demonstrated the immense potential of digital distribution, becoming the dominant PC game storefront.

These proprietary digital storefronts offered several key advantages to gaming giants:

• Higher Profit Margins: By selling directly to consumers, platform holders could keep a much larger percentage of the game's sale price, rather than splitting it with a retailer.
• Direct Customer Relationships: They gained direct access to customer data, allowing for personalized recommendations, targeted advertising, and better understanding of player behavior.
• Control Over Pricing and Promotions: They could set their own sales, bundles, and pricing strategies without needing to coordinate with external retailers.
• Elimination of the Used Game Market: Digital games cannot be resold, completely cutting off the secondary market that had plagued publishers.
• Instant Access and Convenience: Players could download games instantly, without waiting for shipping or visiting a store.

This shift fundamentally altered the landscape. While e-commerce giants continued to sell physical copies of games and consoles, their role in the digital distribution of games began to diminish significantly. The gaming industry was effectively building its own e-commerce ecosystem, creating a direct pipeline to its customers and reclaiming control that had been eroding with the rise of online retailers.

The Evolving Conflict: From the DS Era to Modern Gaming

The "unstable relationship" identified by the NYU lecture didn't end with the Nintendo DS; it evolved. As digital distribution became the norm, the battleground shifted. E-commerce giants still play a crucial role in selling gaming hardware, accessories, and physical collector's editions. They also became platforms for selling digital codes, but the primary transaction for digital games increasingly happened within the console makers' or PC storefronts.

Subscription Services and Cloud Gaming

The latest phase of this evolution involves subscription services like Xbox Game Pass and PlayStation Plus. These services offer access to a large library of games for a monthly fee, further changing how consumers "own" or access games. This model moves even further away from traditional retail sales, whether physical or digital. Cloud gaming services, which stream games directly to devices without downloads, represent another step in this direction, potentially making physical media and even local digital downloads obsolete for some players.

For e-commerce giants, this presents a new challenge. How do they integrate into a world where games are subscriptions or streams rather than discrete products to be sold? They might become platforms for selling subscriptions, but the direct revenue stream from individual game sales diminishes. This forces them to adapt, perhaps by offering bundles of services, or by focusing more on hardware sales and general gaming merchandise.

The Mobile Gaming Revolution and App Stores

Parallel to console gaming, the rise of smartphones and mobile gaming introduced another powerful e-commerce model: app stores. Apple's App Store and Google's Google Play are massive digital marketplaces where games are sold, often for very low prices or through free-to-play models with in-app purchases. These app stores represent a different kind of "e-commerce giant" that directly competes for consumer attention and spending. The tensions here often revolve around revenue sharing (e.g., the 30% cut Apple and Google take) and platform rules, leading to high-profile disputes, as seen with Epic Games and Apple.

While the Nintendo DS predated the full explosion of mobile gaming, the DSiWare service was an early taste of what was to come – small, cheap games delivered digitally. The lessons learned from that era, about user acquisition, pricing, and content delivery, undoubtedly influenced how companies approached mobile gaming.

The Symbiotic Yet Tense Future

Despite the historical tensions, the relationship between gaming giants and e-commerce platforms is not purely adversarial; it's often symbiotic. Gaming companies still rely on e-commerce for:

• Hardware Sales: Amazon is a critical channel for selling consoles like the Nintendo Switch, PlayStation 5, and Xbox Series X, especially during launch periods or holiday seasons.
• Accessories and Merchandise: Controllers, headsets, gaming chairs, and official merchandise are still heavily sold through online retailers.
• Digital Codes: Even for digital games, many e-commerce sites sell codes that can be redeemed on a platform's own store, offering an alternative purchase path or gift option.
• Pre-Orders and Collector's Editions: For many enthusiasts, e-commerce sites are the go-to for securing limited-edition physical copies or bundles.

On the other hand, e-commerce giants benefit immensely from the popularity of gaming. Gaming products drive significant traffic and sales to their platforms, especially during major game releases or console launches. The gaming industry is a multi-billion dollar sector, and online retailers want a piece of that pie, even if it's not always through direct game sales.

The "unstable relationship" described in the NYU lecture isn't necessarily about outright warfare but rather a constant negotiation of power, value, and distribution. Each side wants to maximize its share of the market and control the customer experience. The Nintendo DS era marked a crucial turning point, showing the gaming industry that it needed to adapt to the online world, either by embracing e-commerce partners or by building its own digital infrastructure. It learned that relying too heavily on external retailers could erode its control and profits.

Conclusion: A Legacy of Digital Evolution

The NYU lecture's suggestion that the complex, sometimes fraught, relationship between the gaming industry and e-commerce giants began with the Nintendo DS offers a compelling historical perspective. The DS, with its massive popularity and reliance on physical cartridges, became a focal point where traditional retail, emerging online sales, and the nascent steps towards digital distribution all converged. It highlighted the power of online retailers to influence pricing and foster a pre-owned market, prompting gaming companies to re-evaluate their strategies.

From the early days of online price wars and the rise of the used game market on platforms like eBay, to Nintendo's experimental DSiWare, the seeds of today's digital-first gaming economy were sown. This era forced gaming giants to realize the importance of direct customer relationships and proprietary digital storefronts, leading to the sophisticated ecosystems we see today with the eShop, PlayStation Store, and Xbox Marketplace.

The journey from physical cartridges for the Nintendo DS to a world dominated by digital downloads, subscription services, and cloud gaming has been swift and transformative. While the methods of competition and collaboration have changed, the fundamental tension identified at NYU remains: who truly owns the customer, the transaction, and the overall gaming experience? The Nintendo DS, therefore, stands not just as a beloved console but as a pivotal chapter in the ongoing story of how the worlds of gaming and e-commerce continually shape, challenge, and ultimately redefine each other.

from Kotaku
-via DynaSage