Running head: NINTENDO'S DISRUPTIVE STRATEGY: IMPLICATIONS FOR 1

Nintendo's Disruptive Strategy: Implications for the Video Game Industry

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NINTENDO'S DISRUPTIVE STRATEGY: IMPLICATIONS FOR 2


Nintendo's Disruptive Strategy: Implications for the Video Game Industry
Burning Questions:
1. Has Nintendo really disrupted the industry and changed the name of the game?
2. Would this disruptive transformation of the video game industry leave the competitors
in the cold?
3. What course of action was available to them?
Disruptive Technology
coined by Clayton Christensen, a Harvard business professor
leading companies , despite having followed all the right practices, still lost their top
positions when confronted with disruptive changes in technology and market structure.
Failure to meet the technological demands of customers in the future
An innovation that used a disruptive strategy rather than a sustaining strategy or
revolutionary strategy
KEY PLAYERS IN THE VIDEO GAME INDUSTRY
Sony (Playstation), Nintendo (Wii) and Microsoft (Xbox)
SONY introduced Playstation (PS), attracted late teens and young adults with
disposable income, offered more sophisticated and more violent games; backward compatibility
(PS1, PS2 and PS3), can also play CDs and DVDs. Also launched Playstation Portable (PSP)
1. PS3 a multimedia entertainment hub; allows users to chat online, listen to music,
view HD animations
2. results were disappointing because of Supply problems and the high price tag
SONY produced 40% of its components in-house. Massive costs of investing in the game
console equipped with Blu-ray and Cell chip
NINTENDO'S DISRUPTIVE STRATEGY: IMPLICATIONS FOR 3


MICROSOFT a diversification move, addressing a potential threat the video game
market was posing in the PC market.
1. Xbox compete directly with PS2 and Gamecube
DISRUPTIVE STRATEGY: INNOVATIONS THAT CAPTURED NON-
GAMERS/ REVOLUTIONIZED THE NAME OF THE GAME AND IMPACTED
OTHER INDUSTRIES AS WELL
Wii a nifty machine that used a wand-like remote controller to detect the players hand
movements, allowing them to emultate the real-life gameplay of such games as tennis, bowling,
and boxing.
Wii Fit - an extension of the Wii for exercise activities utilizing the Wii Balance Board
peripheral; aimed to integrate health and entertainment; featured 40 different activities such as
yoga, push-ups, aerobics, other exercises. Impacted the health industry doctors and therapists
recommending it for various purposes as body balance, strength, the elderly.
Wii Ware loosened its traditional tight control over content, launched an online channel
for distributing downloadable games; users can download new games by independent
developers.
HISTORY OF NINTENDO
1889 founded by Yamauchi, manufacturing of playing cards
1959 making theme cards under agreement with Disney
1963 gone public
1970 1985 manufacturing of electronic toys and video games
1991 launched Super NES
- Sony launched Playstation (PS), used CD-ROM
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Top Games Super Mario Brother and The Legend of Zelda
ORIGINAL TARGET MARKET OF VIDEO GAMES
Teenagers to young adults, mostly male, late 20s to early 30s, had substantial
disposable income
TRENDS/DYNAMICS
1. The convergence of information technology, telecommunications, media and
entertainment brought about dramatic social and technological changes.
2. Availability of broadband internet, increasing sophistication of high-definition (HD)
video technologies
3. Decreasing cost of hard-drive storage
4. On-line gaming provided similar social-networking or virtual world services
5. Video game market was shrinking (in Japan.)
6. Increasing complexity of video games requiring gamers to use complex controllers
with combinations of buttons and joysticks
NEW INNOVATION STRATEGIES
MARKET
1. To reach out to non-gamers
2. To develop simpler games targeting all customers, irrespective of age, gender or
gaming experience
3. New games are easy to learn; would require easy-to-use controller
4. Games scenarios to be based on real-life situations rather than fantasies
PRODUCT
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1. DS double screen, a new handheld gaming device; touch-screen that gamers could
tap or write on with a stylus; enabled games to play without buttons or joysticks.
2. Wi-Fi Connection allowed DS system players to play with other users through a
wireless network.
3. Nintendogs virtual pets, attracted female gamers
4. Brainage brain-training games / puzzles
5. DS lite / Game Boy
6. Wii video game console, resembled a TV remote control, simulate real-life sport
games, could also connect to the internet, access Nintendos game catalogue
7. Nintendo also outsourced nearly all production of the Wii and DS, having more than
one supplier for the same part cheaper parts and increasing production was not difficult
8. VIDEO GAME SOFTWARE
Focus on characters rather than special effects
Wii Sports - thrown in five simple but addictive games
Focused on developing first-party titles vs. Sony & Microsoft who relied heavily on 3rd
parties to develop titles/games
Nintendo games are not compatible with another companys hardware
PROMOTION
Marketing: recruited a handful of carefully chosen suburban housewives to spread the
word among their friends that the Wii was a gaming console the whole family could enjoy
together
Wii also featured by gamers in self-made videos uploaded on Youtube and social
networking sites
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PLACE
Exergaming allowed users to perform gestures and movements on-screen as doing
an exercise or a sport, and be assessed on physical fitness.
PRICE
o Nintendo was in an enviable position of making a profit on each Wii console sold with
a gross profit margin per console of US$ 49 in the US and US$ 74 in Europe
o SONYs selling price of US$ 499 resulted in a unit loss of about $307
o MICROSOFTS Xbox 360 has an estimated profit of us$ 75.70 on the retail price of
US$ 399; posted a net loss of US$ 1,1 billion by extending warranty to three years death ring
issues ( a problem with a defective graphic chip)
o Nintendos focus on in-house titles also had pronounced impact on revenues. 3rd party
developer get 85 90% of game price while console manufacturers get 10 -15%.
What can SONY and MICROSOFT do to win the new battle?
Firstly, both big giants should study the game way of Wii. The new game way can bring
more joy to the gamer. There are three ways to change the traditional way:
1. Multi-sense stimulus. The video game is not only the game between eyes and screen.
More organs should be attracted into the game. With the help of high technology, the console can
simulate many real sport situations that the gamers can not realize in the real world.
2. High-level sense experience. Even the new game way and easy game style of Wii
attract many gamers, the high-level sense experience is also very important. Most information
derived from sight for people, thus the high-level vision effect is also very important for the
video game.
NINTENDO'S DISRUPTIVE STRATEGY: IMPLICATIONS FOR 7


3. Network communication. As many video game companies noticed, maybe the
experience derived from the successful game of Internet, the joy from game should be shared,
and in this way more and more people will enter the game world.
SONY and MICROSOFT have their own advantages.
For SONY, the high-definition video device can provide perfect vision experience.
Grasping the core technology of Blue-ray is SONYs very strong advantage. In addition, the
important role in the film entertainment will bring SONY more inspiration to its game software.
To be more important, the former success in the game world lets SONY have many loyal
gamers, this is the most valuable treasure for the game company. Maybe, in the future, PS series
console will become the media and entertainment center of family.
For MICROSOFT, the absolute king of PC OS brings MICROSOFT the best way to
connect PC and video game. In addition, the strong capital can let MICROSOFT have the chance
to change whole structure of video game. Considering the important role in the PC and Internet
of MICROSOFT, X-BOX series console, the hardware platform of software giant, will become
the smart information center of family, not only for game, but also for information
communication and management.
- Leverage the trend of 3D: I've experienced the 3D TV prototype sample at the SONY
Gallery couple of months before and that experience reminds me of this solution. I always
imagine how exciting a true 3D game would be while I doubt if my Wii can ever achieve that.
- Develop low cost online games: I have never been addicted to any PC online games but
many of my friends were. However, it would be great if I can use my console to play some short
online games with friends through internet (such as CS, tennis, golf and etc). I believe this could
be an unexploited market for SONY and Microsoft.
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- Optimize the cost and profit: the ultimate goal of the business is the profit. While it's
difficult to increase the selling price, I saw in the case that SONY and Microsoft have taken
some actions to cut the cost. But there are something else they can do, such as increase
outsourcing rate, optimize the distribution channel and etc.
In the end, there is a very important market that every game company should not neglect.
It is the portable device game market. Some video game companies have their portable game
devices, for example, the DS, and PSP, but the trend of combination of mobile phone and
portable game device is absolute. In the mobile communication device domain, SONY and
MICROSOFT have very strong potential, thus both companies have lager space to develop their
own game business.
In my point of view, Nintendo's biggest success is his Wii did the similar thing with
Apple's iPhone - their own and created a new field of industry and bring people to a brand new
direction, it also has become a peer catch-up target. Wii's game consoles bring body induction
into the living room and teases nostalgia people to recall the past scenario (like double dragon
game).
Ease of play is another important factor. It is no longer a young and hard-core gamers'
patent, grandpa and grandma can also find fun with kinds of simple sports games.