Summary
Apple has built a silo eco-system around its iPhone and iPod. In doing so, Apple has been able to quickly solve the biggest problem for any other player who is trying to play the compatible game - user experience. The mobile market has suffered from device fragmentation for some time and Apple hasn't helped there.
Now, however, Apple is bringing a slew of functions together, thereby making the mobile devices hard to define. The convergence of multiple, seemingly disparate functions (e.g., mobile gaming and voice calls) creates new threats to companies that until recently did not have Apple on their radar.
Analysis
Apple is taking aim at both Cisco's (CSCO) Flip video camera and Nintendo (the DS suite of devices) by adding functions to the iPod and iPod Touch (a.k.a. iTouch). One can argue that Cisco just bet on the wrong product for the current time, since every device today seem to come with a camera. With that in mind, Apple is just playing catch-up with the the rest of the market. The situation with Nintendo is more interesting though. On the surface, the Nintendo DS (and, especially the DSi) has many of the same functions of an iPod Touch. It is very differently positioned though. Also, it has a slightly different user interface, which may very well be the aspect that keeps Nintendo in the game.
It is very important to look at the target demographics here. The iPod and iTouch are largely positioned as media devices (music, video, text, images) for all ages. The Nintendo DS is a gaming device, primarily for younger generations, especially kids.
It doesn't really matter that the iTouch can play downloadable games. Nor does it matter that there are more games to chose from (supposedly). It lacks the fundamental gaming controls. The analogy to this is the launch of the BlackBerry, which was the first email device. Other mobile devices had email built in as well. They just weren't dedicated devices and the BlackBerry/Research in Motion (RIMM) has therefore enjoyed a long and profitable position as the leader in mobile email.
It is quite likely that Apple's new devices will have significant negative impact on the Flip since both products target the same user demographics.
On the same note, it is unlikely that it will impact Nintendo DS sales a great deal. The products are simply addressing different demographics. Nintendo's hold on the young gaming generation remains strong. With a user interface designed for gaming, Nintendo will likely retain a strong position.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
