9.32 Nitendo wii

Nintendo Co., Ltd. is a multinational corporation located in Kyoto, Japan.

The company started in 1889 as the maker of hanafuda cards, developed various niche businesses, and in 1963 turned to video games. Today the company is Japan's third most valuable listed company, with a market value of over US$85 billion, and has sold over 565 million hardware units and 3.4 billion software units. {13}

Business Model

Video games are examples of double-sided platforms. Consoles will only be built if there are sufficient players to justify development and marketing expenses. Players will only buy the console if it hosts sufficiently good games. Both are needed, and the costs are considerable, leading to intense competition between Sony, Microsoft and Nitendo. Sony's Playstation and Microsoft's Xbox came to dominate the market by targeting avid gamers with increasingly sophisticated (and expensive) consoles that were sold at a loss {8} ( to be recouped from higher software prices, {4} but possibly also to see off the competition. {1} {2} {3}) Sony and Microsoft's business model was:

1. Develop and sell games for their own consoles/PCs.
2. Sell better (faster CPUs and graphics cards, larger RAMs) consoles/PCs to avid, hard-core gamers.
3. Earn royalties from third party games developers.

Nitendo could not compete with these giants and was approaching bankruptcy {4} when it introduced its own, new business model, which targeted family players who wanted entertainment rather than the latest in technology. Nitendo's business model was:

1. Produce and sell a remote control device at modest cost.
2. Target customer segments looking for entertainment.
3. Earn royalties from third party games developers. {1}

Development of the Wii

Nitendo's fortunes started to turn round in 2002, when the company identified two trends. The first was that young consumers reduced gaming time when they started careers and families. The second was that, as consoles became more powerful, making games for them got more expensive. Companies became more conservative in the games they developed, which increasingly put Nitendo at a disadvantage.

Nitendo's first move was to improve the game controllers, whose basic design had hardly changed since the first paddles. Nitendo: {4}

1. Introduced the $150 DS handheld game system in 2004.
2. Broadened its appeal by replacing its kid-friendly Game Boy by Nintendogs and then Brain Age, a game designed for more mature players. Sales were initially slow to take off, but eventually achieved 5.6 million units during the first holiday season.
3. Developed the wii game controller, sleek-looking and boasting Wi-Fi networking and voice recognition, but powered by a relatively slow (and cheap) CPU chip.
4. Designed impressive 'sports match' games to make full use of wii's powers.

In 2006 Nitendo marketed its wii game controller by: {4} {10}

1. TV campaigns targeting school kids and 25-49 year olds.
2. Ads in gray-haired publications like AARP and Reader's Digest.
3. Campaigns in social-media platforms, including MySpace.
4. Giving away its killer application, Wii Sports, with every $250 console.

The DS and Wii systems boosted shares to make Nintendo's 2007 market capitalization almost twice that of Sony ( whose total revenue is more than eight times as big as Nintendo's). {5} Nitendo exploited its new customer segments by increasing the software available for the wii with: {5}

1. A wider range of games generally (though fewer than the competition {7}).
2. Help programs like home budgeting, recipes and health care.{9}
3. Home fitness programs introduced by game stars like Mario and Zelda. {9}
4. 'Wii Sports' software that exploited the motion-sensing controller.
5. Games like 'Tennis', which actually provides physical exercise.
6. Brain training programs that appeal to the young and may ward off Alzheimer's in later life. {6}

Points to Note

1. Double-sided platform that earns from both sides.
2. Nitendo's focus on casual gamers.
3. Low-cost differentiation of the product (game controller).
4. Rapid exploitation of a new customer segment.

Questions

1. What is meant by double-sided platforms? How did this place Nitendo at a disadvantage?
2. Explain how competition forced Nitendo to change its market segments. How did it later exploit the new market segments?
3. Describe the evolution of the wii system.
4. Explore the current marketing efforts of Nitendo. Are they succeeding?

Sources and Further Reading

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