Pokémon Go: An Amazing Asset for Nintendo?

By Mathieu Wener

In Montreal, your typical summer is highlighted by the numerous festivals and concerts the city has to offer, the inflow of tourists, and, of course the abundance of orange cones brought about by the inevitable construction season.

This summer is different; a new phenomenon has been sweeping the streets of the city. Niantic's Pokémon Go has been heralded as the game of the summer. Is it merely a fad or will it have enduring success?

Officially launched on July 6th in the United States, Pokémon Go has generated over 100 million downloads and 268 million dollars in five weeks. This is far more than other hit mobile games have earned in the month following their release; Clash Royale and Candy Crush earned 125 and 25 million respectively in that time frame. One survey of nearly 50,000 people concluded that 13% of the adult population in the US, Germany and UK play Pokémon Go. While the application itself is free, one in five players make in-app purchases and more importantly, 90% of players have continued to play four weeks later. While this appears to bode well for the game’s potential longevity, four weeks is a very short amount of time, with limited repercussions on the game’s future. Meanwhile, Pokémon Go developer Niantic makes good use of an effective business model; having the application initially free to attract the largest possible amount of users, and then earning money through microtransactions on a subset of users willing to “pay-to-win”.

How Pokémon Go is a step forward in augmented reality

Pokémon Go truly marks the arrival of augmented reality into public consciousness. Using smartphone GPS, data and camera, it essentially superimposes Pokémon into the world at large, allowing players to catch them using Pokéballs obtained at Pokéstops. Players also compete for the possession of Gyms in order to gain coins used for in-app purchases. Pokéstops and Gyms are conveniently placed at notable landmarks such as parks, statues and fountains, as well as certain hotels and restaurants. Niantic is hoping this rather simple concept will get both old-school and newer fans hooked.

Niantic was founded in 2010 by John Hanke as an internal startup branch within Google, although it separated itself from Google during its restructuring as Alphabet, inc. during late 2015, in large part due to having gathered investments from Nintendo and The Pokémon Company as well as Google itself. It is worth noting that Pokémon Go was not Niantic’s first successful game. In fact, it appears to be a re-branding and tweaking of their previous game, Ingress. It too was a location-based game, and grew by crowdsourcing its portals and control fields.  Launched in 2012, Ingress totaled 15 million users worldwide and laid much of the groundwork for Pokémon Go; the same crowdsourced locations being featured as Pokéstops and Gyms.

One of the most amazing things is how disproportionately successful Pokémon Go has become as compared to Ingress, despite the former essentially being a remodeling of the latter. The server troubles Niantic experienced in the period immediately following the game's release are a testament to its own surprise at the game’s immense popularity. It really highlights the power of the Pokémon brand, especially among its core audience. More particularly, the design of Pokémon Go offers certain features that previous role-playing game style iterations of the franchise did not, such as actually throwing the Pokéball and going around in the real world searching for Pokémon. Business people everywhere should take note of what Niantic has achieved by taking an already established brand in a new direction.

Another survey has revealed interesting tidbits about the Pokémon Go player base, and its impact on the world around it. Its main findings assess that 56% of players are between the ages of 18-29. Niantic’s identification of its core audience as millennials is crucial information for its future product strategy. It also impacts how other businesses can use the game as a part of their own marketing: 60% of players describe themselves as viewing businesses who adopt Pokémon related discounts favourably, along with being more likely to enter said establishments. Many others have caught on to the marketing potential of Pokéfever. Several local shops have been offering related discounts and in Japan, there are talks of a partnership between Pokémon Go and McDonald's, which would involve more Pokémon appearing at restaurant locations. Also noteworthy is American travel agency Geckos Adventures, offering a Pokémon themed getaway consisting of going on a Poké-hunt of sorts across the Mediterranean, and seeking to catch’em all while visiting historic landmarks such as the Great Pyramids and the Coliseum of Rome. Pokémon Go’s integration into other businesses’ marketing plans is a promising sign for the game’s future.

In the financial markets, the release of Pokémon Go has reminded investors how knowledge is key. Nintendo’s stock value began a steady climb following the game’s release, reflecting the immense hype surrounding it. At its highest point on July 19th, it accounted for a quarter of all Tokyo Stock Exchange trades; the stock price had more than doubled, but then declined after Nintendo released a statement meant to make clear that Nintendo did not produce the game, but merely granted Niantic (in which it has a 33% stake) the right to use its intellectual property – the Pokémon brand. Financial advisory firm Macquarie Securities has estimated a 13% “effective economic stake” for Nintendo and it appears the stock price has settled appropriately.

Niantic's successful fortune coming to an end

Reception for Pokémon Go has not been entirely positive among the general public, which may impact the game’s long-term success. Several fines have been handed out to players present in parks after closing hours, and the developers also received criticism for placing Pokéstops on more sensitive landmarks such as cemeteries, war memorials, and museums. Across the globe, there have been numerous injuries or deaths as a result of people playing Pokémon Go while driving or trespassing into dangerous areas or simply as a result of being unaware of their surroundings. In the Middle-East, some nations are currently moving against Pokémon Go: In Saudi Arabia, a religious ruling against the Pokémon card game from 2001 is said to also apply to the augmented reality game because it is considered a form of gambling and in Iran, the game has been banned over concerns regarding the safety of children. In Alberta, there is a class action lawsuit currently seeking plaintiffs who have found their private property rights violated by players at all hours of the day or night.

Further, Niantic has received criticism from users themselves. Since the release of the game, players have expressed their concern with the leveling up system and how it feels quite counterintuitive. The requirements for leveling up grow exponentially and make more advanced players feel as though they are walking in quicksand. To make matters worse, many report basic Pokémon actually being harder to catch at higher levels. These issues exemplify how in-game incentives play an important part in ensuring players stay interested for long periods of time; Niantic’s response to these issues will thus play a large role in the game’s longevity. Additionally, a game's expected product life cycle can without a doubt affect decisions about how aggressively to implement and encourage in-app purchases. If the game’s developers do not expect its success to be long lasting, it would make more sense for them to try and squeeze every penny out of it while they still can.  Without a doubt, there are various tradeoffs involved in monetizing a game more blatantly; making more money per player versus losing a portion of the player base. These are all important issues which gaming company executives must thoroughly consider.

However, we must also consider that profit may not be the only motive at play. Game software, just like art, can be produced as a form of self-expression. Oftentimes, game developers do not adapt their work in accordance to the whims and desires of the public, for the same reason that musicians receive criticism for changing their style to appeal to the masses.  This is noteworthy because it is consistent with Niantic’s response to third-party tracking and John Hanke’s comments on the matter, mentioned below.

Another perhaps unexpected development came into existence after the game’s release: third-party complementary applications. For example, GoChat allowed players to leave messages to comrades about nearby Pokémon. It totaled 1 million total downloads in five days and made the top 10 apps in the Apple App Store. PokéRadar reached #2 on the same ranking, trailing only Pokémon Go itself; it was designed to help players track nearby Pokémon thanks to Niantic’s “back-end” data which was readily available. Much to players’ dismay, PokéRadar, Pokévision and other such similar applications were disabled on July 31st for not respecting the Niantic Terms of Service. Niantic CEO John Hanke provided two reasons for moving against third party tracking: firstly that it created huge strain on servers, which were not expecting such immense success and are also expecting an increase in demand resulting from the game’s continual release in more countries. Secondly, he explained that precision tracking goes against the way he believes the game is meant to be played, claiming that knowing the exact location of Pokémon defeats the purpose of searching for Pokémon to begin with. Nevertheless, the fact that the game’s release brought about equally popular applications meant to add to players’ experience could actually be interpreted in a positive or negative light: is it more telling of the game’s immense appeal or of something fundamentally lacking?

In the immediate aftermath of its release, Pokémon Go has had an immense impact on gamers, financial markets as well as the world at large. It is clear that business leaders, if not too busy to be playing, have been paying close attention to the implications of the game’s immense success thus far. So what can be learned from the game’s impressive summer splash?

Pokémon Go is great for the Augmented Reality (AR) and Virtual Reality (VR) world simply because of the awareness it has brought to the general public that the future of gaming is at our doorsteps. While these industries have aspirations far more ambitious than Pokémon Go, they have largely been developed in the confines of Silicon Valley startups, where tech aspirations are sky-high and entrepreneurs compete to secure venture capital for their revolutionary endeavors. Many VR headsets have already hit the market: Samsung’s Gear and Google’s Cardboard mobile VR consoles are quite affordable, while Facebook’s Oculus Rift and HTC’s Vive consoles are more expensive but feature more powerful hardware. These are but the first iteration of consoles in what is poised to become a multi-billion dollar industry. Goldman Sachs estimates that by 2025, the industry will be worth between 80 and 180 billion dollars. If anything, Pokémon Go serves as a hint of greater things to come within the gaming world, whether it achieves lasting success or not.

It is now apparent that Pokémon Go is more than a game, it has evolved into a social phenomenon. For a large part of the summer, several hundred players showed up every evening to benefit from the many Pokéstops concentrated in Montreal’s Cabot Square, just a few blocks from Concordia and without a doubt the most popular spot in town for Pokémon trainers. Although this bodes well for the game’s longevity, will the imminent cold weather play a factor in its long-term success?

In colder countries like Canada, who will want to go out and catch Pokémon in January? It will be interesting to see whether Pokémon Go will stand the test of time and still be popular in a year, or whether it will slowly fade away, like Montreal construction sites during the fall and winter months. How will Niantic respond to public concerns about the game? Will the game add any new features? Will it adjust the game based on community feedback? As time provides us with answers to these questions, so will Pokémon Go’s fate unfold.