Pokémon Go is much bigger than Nintendo — here's why

Japanese gaming giant Nintendo has seen its stock (NTDOY) shoot up 57% in the past five days and its market cap grow by nearly $10 billion, and it’s all because of one thing: Pokémon Go. It’s a big win for a 120-year-old gaming company that has been widely criticized in recent years as irrelevant. But Pokémon Go’s success has major implications beyond Nintendo.

If you’ve somehow missed the news of this viral smash hit, Pokémon Go is a new mobile game that uses augmented-reality to project animal characters onto the real world and help you hunt and catch them. The smash-hit Star Wars BB-8 toy, released by Sphero last holiday season, uses similar augmented reality in its app to display hologram messages.

Pokémon first debuted in 1996 on the Nintendo Game Boy. In those games, the player, in a quest to become a Pokémon Master, would have to battle pokémon, using already-captured pokémon, in order to catch them. The new game is far simpler: No battles needed, except at training “gyms” where users can battle each other. When you find a pokémon on Pokémon Go, you simply swipe your finger up to toss a pokéball (stay with me here) at the creature and trap it. In other words, it is a far less complex game than past versions, but therein lies the brilliance.

This year, the Pokémon Company shelled out $5 million for a Super Bowl ad observing the 20th anniversary of the franchise. In February, Nintendo released a spruced-up relaunch of the original Pokémon Red, Blue, and Yellow games. It has all led up to this, a free mobile game produced by developer Niantic, licensed by Nintendo.

Pokémon Go plays on the nostalgia of millennials who grew up with the franchise and remember the animated TV series. But it’s also catching fire with people who never knew about pokémon before. Depending on whom you ask, that’s thanks to a combination of addictive gameplay (the appeal of collecting something) and the augmented reality, which is bleeding into social media (people take screenshots of the pokémon hovering in the real world, then post them on Instagram or Twitter).

But if you read the flood of hot-take headlines that has already begun, you’ll see a lot of negatives. Players walk around their city or town, head down, staring at their screen, and have tripped, bumped into people or objects, or almost been hit by cars; a player in Wyoming stumbled upon a dead body; some players have been robbed. And the game, in this early iteration, has a number of glitches.

None of this matters much to Nintendo or negates the business significance of this game.

If people are so enraptured by the experience that they are getting injured, so much the better for Nintendo; if there are glitches caused by a network overload, so much the better for Nintendo. “The game is being overloaded by demand, which is a good thing longer term, assuming it is solved quickly,” Macquarie analyst David Gibson said in a note to clients on Thursday.

Nintendo and developer Niantic have also inadvertently proven that people will happily endanger their cybersecurity with little hesitation if time is of the essence. Pokémon Go gives you only two options when you first sign in: register for a pokemon.com account or log in through Google. Because the game is so hot right now, the Pokémon site isn’t allowing new signups, which leaves Google access as your only option for now. Frenzied users don’t appear to care.

The game is designed to be addictive, and it is succeeding. According to SimilarWeb, Pokémon Go has been downloaded on more Android phones than the dating app Tinder. It has completely changed the narrative for Nintendo, which was late to the mobile gaming boom and has seen a run of bad years; Nintendo net profit fell 61% in fiscal year 2016 on abysmal sales of its latest console, the Wii U.

More important than the boon to Nintendo, this game is also a positive indicator for the larger “freemium” model of games that are free to download, but layer on premium features for a fee. Pokémon Go charges money to buy more pokéballs; you can expect children to buy up balls using Mom or Dad’s credit card, much like has happened with Kim Kardashian’s mobile game. You can also expect Nintendo to produce a crush of new Pokémon merchandise.

The combination of in-app purchases, augmented reality, and social media tie-in is the magic mix that has helped the game catch on with many different ages and demographics. Juniper Research has predicted the market for mobile games will balloon to $100 billion in revenue by the end of 2018. Smartphone gaming is currently generating an estimated $40 billion per year.

And this phenomenon is only getting started. As Yahoo Finance editor-in-chief Andy Serwer said on our afternoon live show Monday, “This is the beginning of something. I’m just not exactly sure what it is.”

To see it is to believe it: Bryant Park, a contained area for tourists and office workers in midtown Manhattan, teemed on Monday morning with people hunting pokémon. A police officer who was playing on his phone said he had become obsessed over the weekend; he would not share his name. (“I’ll get in trouble.”) A father and his two sons, who had come to New York from Arkansas on vacation, said he had to cancel some activities to schedule blocks of time for Pokémon GO. Many adults were hunting pokémon on their lunch break from work.

To meet more of these Pokémon Go addicts, see the above Yahoo Finance video.

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Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.

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