Havovi joshi, Snrnuel Tsang
The University of Hong Kong, Asia Case Research Centre
For some time we have believed thegame industry is ready
for disruption. Notjust from Nintendo, but from allgame
developers. It is what we all need to expand our audience.
It is what we all need to expand our imaginations.
- SATORUIWATA
PRESIDENT OF NINTENDOCO. LTD'
I n the 2008 Businessweek-Boston Consulting Group
ranking of the world's most innovative companies,
Nintendo Co. Ltd ("Nintendo") was ranked seventh, u p
from thirty-ninth the previous year.2 This improvement
was in recognition of Nintendo's transformation into an
innovative design powerhouse that challenged the video
game industry's prevailing business model.
In 2000, when Sony, Microsoft, and Nintendo (the
"big three" of the video game console manufacturers)
released their latest products, Sony's PlayStation 2 (PS2)
emerged as the clear winner, outselling Microsoft's
Xbox, and Nintendo's Gamecube. In ,2006, these
players introduced a new generation of video game
consoles, precipitating a new competitive battle in the
industry. Microsoft and Sony continued with their pre-
vious strategy of increasing the computing power of
their newest products and adding a more impressive
graphical interface. However, Satoru Iwata, president
of Nintendo, believed that the video game industry had
been focusing far too much on existing garners and com-
pletely neglecting non-garners. In light of this belief, the
company repositioned itself by developing a radically
different console, the Wii (pronounced "we"). The Wii
was an interesting machine that used a wand-like remote
controller to detect players' hand movements, allowing
them to emulate the real-life play of such games as
tennis, bowling, and boxing.
Havovi Joshi and Samuel Tsang prepared this case under the supervision of Professor Ali Farhoomand for class discussion. This case is not intended t o show
effective or ineffective handling of decision or business processes. O 2009 b y The Asia Case Research Centre. The University of Hong Kony N o p a n of th~s'
publication may b e reproduced o r transmitted in any form or by any means-electronic, mechanical, photocopying, record~ng,o r otherv,se (~ncludingthe
Internetl-without the permission of The University of Hong Kong.
The new console proved to be a runaway success.
By September 2007, Nintendo had become Japan's most
valuable listed company after Toyota, and its market
value had tripled since the launch of the Wii. In spite
of this initial success, however, it was not clear whether
Nintendo had really disrupted the industry and signifi-
cantly changed the dynamics of competition in it.
Histo of Nintendo,
1889% 2002
Nintendo's3 roots could be traced all the way back to 1889
in Kyoto, Japan, when Fusajiro Yamauchi, the founder
of the company, started manufacturing playing cards.
In 1907, the company began producing Western playing
cards, and by 1951: it had become the Nintendo Playing
Card Company. In 1959, it began making theme cards
under a licensing agreement with Walt Disney Company;
by 1963, the company had gone public and taken its cur-
rent name. During the period 1970 to 1985, Nintendo
began focusing on the manufacture of electronic toys and
entered the emerging field of video games (see Exhibit 1).
Interestingly, 1991, the year Nintendo launched
the highly popular Super NES in the United States,
was also the year Nintendo's vision become Sony's
opportunity-and the creation of what could be
described as Nintendo's "greatest challenge" for over
a decade-the Sony PlayStation (PS). Nintendo had
wanted to incorporate Cl>-ROM into its Super NES,
and Sony had agreed to create the PS for this purpose.
However, over the next two years there were many con-
flicts of vision between Nintendo and Sony, and the two
finally parted ways. Nintendo went ahead with Philips
Exhibit 1 The History of Nintendo, 1889 to.2002
, I

m
1889 Fusajiro Yamauchi, the founder of the company, began manufacturing and selling Japanese playing cards. m

I
N
m
1907 I The company began producing Western playing cards.

1 1951 I
I
Beglns uslng the name "Nmtendo Playlng Card Company Ltd."
,- - - -- - -
Nlntendo began maklng theme cards under a llcenslng agreement with Disney ,
- -
The company went public and took its current name

Nlntendo began focus~ngon the manufacture of electronic toys and entered the emerging field of video games
by llcenslng Magnavox's Pong technology

s home vldeo game machines, Color TV Game 15 and Color TV Game 6

N~ntendodeveloped ~ t first

Nlntendo established ~ t sU S subsidiary, N~ntendoof Amerlca Developed and started selling the flrst portable
LCD vldeo games wlth a mlcroprocessor.

One of Nintendo's most famous coin-operated games, "Donkey Kong," appeared and was an Instant hlt in both
the United States and Japan.
- - - A - - - - -- -
Nintendo expanded ~ t sproduct range from games and arcade machines t o home consoles, and the company
released Famicom, a technolog~callyadvanced home video game system, In Japan. With ~ t shlgh-quality sound
and graph~cs,Famlcom was a huge hit, dominating the Japanese market.
- - - .- -
Nlntendo successfully launched Famicom in the U n ~ t e dStates as the Nintendo Entertainment System (NES). The
company then marketed a follow-up version of "Super Marlo Bros." for the NES, and this classlc game helped the
NES become a resounding success.
-- - -- . -- - -

N~ntendoreleased a new console, the Game Boy The Game Boy was the first major product in the handheld
game console Industry and became immensely popular because of its portabil~tyand accessibility.
- --- --- -- - - -- -

In 1990, Nintendo launched the Super Famlly Computer game system in Japan, wh~chalso d ~ very
d well. A year
later, the same product was launched as the Super NES in the Un~tedStates In 1992, Super NES was released In
Europe.

Nintendo formed design alliances with companies such as Sllicon Graphics. Released the Super Game Boy, a
peripheral for the Super NES, which enabled Game Boy software t o b e played on the TV screen

Introduced a 32-blt Vlrtual Immersion System, known as the "V~rtualBoy."

- -

Nlntendo launched ~ t s64-bit N64 game system. It launched "Pok6mon" on the Game Boy: the game involved
trading and train~ngvirtual monsters and was the flrst in a hugely popular video-game series. The company also
released another blockbuster vldeo game, "The Legend of Zelda: Ocarina of Time." In just six weeks, 2.5 million
unlts of the game were sold.

It Introduces the Innovative "Rumble Pak" attachment for the N64 controller, whlch enabled the game player to
feel vibrations wh~leplaying the game.

Release of Game Boy Color. "Pokkmon" IS Introduced overseas and becomes a smash hlt.

Nintendo acquired a 3 percent stake of convenience store operator Lawson In order to leverage Lawson's online
operations and network to sell video games.

Launched the new version of the Game Boy, with a 32-bit CPU. Nintendo GameCube is launched in Japan and
the United States.
. .. .. .- . -- - ---- - . . -. -- --
2002 Gamecube is launched in the European and Australian markets.

Source: Nintendo Co. Ltd, 2008, Annual Report, http://w.nintendo.co.~p/1r/pdf/2008/annualO803epdf (accessed October 3, 2008).

technology,4 and Sony was left with the PS, which the
company decided to continue developing. Given Sony's
clout and resources, when the PS and its wide range of
games were finally released in Japan in 1994, the console
was an instant success. In 1995, Sony released the PS
in the United States, totally uprooting Nintendo's estab-
lished name in the industry.
For many years, Nintendo was a dominant player
in the video game industry. It had sold more than two
billion games since 1985. Its top-selling series included