By: Momei Qu

Contributor, Stock Traders Daily

(La Jolla, CA) Remember three years ago when the shortage of Nintendo Wii made everyone’s holiday shopping a nightmare? On Thursday, Nintendo (OTC: NTDOY) announced that it will cut the price of Wii by 20% from $249 to $199.

Although Wii has been the best-selling console on the market with over 50 million units sold, it saw its sales fall last year just like many other products due to the economy (lack of consumer spending) and the fact that fascination with the product has worn off. Nintendo’s action can also be seen as a response to rivals Microsoft (Nasdaq: MSFT) and Sony (NYSE: SNE). Microsoft cut prices on its Xbox 360 “Elite” model by $100 in August, and Sony followed with a $100 price cut of its own on the PlayStation 3. Sony also revealed a PlayStation 3 Slim which comes with a thinner, lighter shape and a 120-gigabyte hard drive.

As the game console contenders fight for market share, consumers can expect further price decreases and improvements in products such as the PlayStation 3 Slim. What about for investors? Would they still be able to see a healthy return now that these three rivals have been on the market for so long and price cutting will continue to decrease margins?

The key is product innovation. Although it is hard to say who would be successful at capturing long term market share, the companies will see its sales jump (even if temporarily) with innovation. Innovation is more than just adding capacity to an existing console or making it look better and feel lighter. It’s about launching products that can change the way people think about gaming, or target a new demographic. The Wii did both – with a highly interactive system aimed at nontraditional gamers - and Nintendo was highly rewarded for it.

Sony announced Thursday that it plans to launch a motion-sensitive controller for its PlayStation 3. The controller consists of a PlayStation “eye” which is placed on top of the television. Not only does the eye detect motion of the controller, it can also track the player’s voice and body motion and output the player’s image onto the screen. The concept of virtual reality has long been showcased in videogame systems at science museums. We will find out next spring if that concept will finally move into mainstream.

Along with new products, there will be new customers to video games, some of which is least expected. Wii has tapped into women and casual gamers and even served as a tool for physical therapy. Which customer groups will Nintendo, Sony and Microsoft target next?