Nintendo's Disruptive Strategy
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A case analysis of Nintendo that explains how the implementation of innovative strategies enables the company to remain competitive within the gaming industry.
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Nintendo's Disruptive Strategy
- 1. Nintendo’s Disruptive Strategy: Implications for the Video Game Industry Eurelle Hao Samantha Hoffer Samantha Moy
- 2. 2 NINTENDO’S DISRUPTIVE STRATEGY Clayton M. Christensen “To remain at the top of their industries, managers must first be able to spot disruptive technologies. To pursue these technologies, managers must protect them from the processes and incentives that are geared to serving mainstream customers. And the only way to do that is to create organizations that are completely independent of the mainstream business.”
- 3. 3 NINTENDO’S DISRUPTIVE STRATEGY • Type of innovation that employs a disruptive strategy • Changes how an industry competes • Creation of a new market • Defies conventional business practices
- 5. 5 NINTENDO’S DISRUPTIVE STRATEGY 1889 – 1989 • 1889: Fusajiro Yamauchi began making & selling Japanese playing cards • 1951: Nintendo Playing Card Company Ltd. • 1963: Company went public & changed to current name • 1985: Nintendo Entertainment System (NES) launched • 1989: Release of Game Boy - 1st major handheld game console
- 6. 6 NINTENDO’S DISRUPTIVE STRATEGY 1991-2002 • 1991: Super NES launches in US • 1996: N64 game system • 1996: Pokémon and The Legend of Zelda: Ocarina of Time • 1998: Game Boy Color • 2001: GameCube • 2002: Game Boy Advance
- 8. 8 NINTENDO’S DISRUPTIVE STRATEGY 1. 1st Generation (1972-1977) •Simple games with basic visuals • Pong by Atari 2. 2nd Generation (1977-1984) •Atari 2600 • 8-bit cartridge • Video game market crashes 3. 3rd Generation (1983-1987) •First console war: Nintendo NES > Sega Master System • Launch of Super Mario Bros and Metal Gear games • Handheld market: Game Boy > Game Gear 4. 4th Generation (1977-1984) •16-bit cartridge • Super NES > Sega Mega Drive 5. 5th Generation (1995-2002) •32-bit, 64-bit, & 3D graphics •Sony launches PlayStation •Format war: CD > Cartridge 6. 6th Generation (1998-2004) •Sony PS2 •Microsoft Xbox •Nintendo GameCube •Sega Dreamcast 7. 7th Generation (2004-2008) •HD graphics •Blu-ray format •Xbox 360 & PS3 Evolution of Technology
- 9. 99 NINTENDO: INNOVATION & LAUNCH OF THE Wii
- 10. 10 NINTENDO’S DISRUPTIVE STRATEGY LOOKING AHEAD • Satoru Iwata, President & CEO of Nintendo (2002-2015) – Market trends and data • Identified potential threats facing the industry • Complexity of video games and controllers – Steep learning curve – Deters newcomers • Industry was largely ignoring non-gamers
- 11. 11 NINTENDO’S DISRUPTIVE STRATEGY IWATA’S STRATEGIC VISION • Objective: create a bigger market by reaching out to non-gamers • Target all types of consumers and develop: – Simpler games – Straightforward controller • Nintendo DS was released in 2004 – Initial test of new strategy – Handheld console segment
- 13. 13 NINTENDO’S DISRUPTIVE STRATEGY Shigeru Miyamoto Member of the Wii Development Team “Our goal was to come up with a machine that moms would want – easy to use, quick to start up, not a huge energy drain, and quiet while it was running. Rather than just picking new technology, we thought seriously about what a game console should be. Iwata wanted a console that would play every Nintendo game ever made.”
- 14. 14 NINTENDO’S DISRUPTIVE STRATEGY Advertising through: Word-of-mouth marketing via suburban housewives, YouTube, and other social networking sites Directly competing with Microsoft’s Xbox 360 and Sony’s PS3• Launched November 2006 • Wand-like controller and motion detector – Enabling simulation of real- life games
- 15. 1515 KEY PLAYERS IN THE VIDEO GAME INDUSTRY
- 16. 16 NINTENDO’S DISRUPTIVE STRATEGY SONY • 1995: Entered the video game market with PlayStation • 2000: Released PS2 and gained control of the video game market • 2004: PlayStation Portable (PSP) • 2005: Sir Howard Stringer hired to resolve recent losses – Project Nippon – “corporate restructuring plan” • 2006: PS3 launched after numerous delays – Supply problems and hefty price cost Sony its dominant market position • 2008: PS3 barely achieved 10% of its target projection
- 17. 17 NINTENDO’S DISRUPTIVE STRATEGY MICROSOFT • 2001: Entered video game market with the Xbox • May 2005: Still distant second to Sony’s PS2 sales • August 2005: Xbox division had cost Microsoft $4 billion – Xbox production ended shortly thereafter • November 2005: Xbox 360 was released – Almost a year before the PS3 & the Wii
- 18. 18 NINTENDO’S DISRUPTIVE STRATEGY VIDEO GAME SOFTWARE • Average cost of development for a single game: $12 million - $20 million • Wii games cost Nintendo about 50% less to develop than its competitors – Lower volume of sales needed to breakeven – Even though PS3 & Xbox 360 are more expensive • Nintendo focused on first-party titles – Software designers worked on hardware design – Consoles were created to complement the concepts of its games • Sales of hardware consoles highly correlated with game launches
- 20. 20 NINTENDO’S DISRUPTIVE STRATEGY 1. XBOX 360 (MSFT) Released November 2005 May 2008: “Microsoft Xbox 360 first to reach 10 million units in US” 2. PS3 (SNE) June 2008: “PS3 came in a distant third with 4.8 million units sold” 3. Wii (TYO) Released November 2006 June 2008: “Wii sold 10.9 million units in US” Sold 600,000 units during first eight days THE BIG THREE
- 23. 23 NINTENDO’S DISRUPTIVE STRATEGY 1. XBOX 360 (MSFT) Released November 2005 May 2008: “Microsoft Xbox 360 first to reach 10 million units in US” 2. PS3 (SNE) June 2008: “PS3 came in a distant third with 4.8 million units sold” 3. Wii (TYO) Released November 2006 June 2008: “Wii sold 10.9 million units in US” Sold 600,000 units during first eight days Wii WINS 4. Wii Fit Extension of Wii for exercise activities utilizing the Wii Balance Board peripheral Health industry impact 5. WiiWare Online channel for distributing downloadable games Nintendo loosening its grip on content control Users can download new games created by independent developers
- 24. 24 NINTENDO’S DISRUPTIVE STRATEGY DISCUSSION QUESTIONS • Discuss the evolution of the video game industry, particularly in terms of competition and technology. • What does disruptive technology mean? What are the principles behind it? • Analyze Nintendo’s disruptive strategy in detail. What are the main features of this strategy that have made the Wii such an overwhelming success? • Assess the key competition faced by Nintendo’s Wii. What are the strategies and options available to competitors to meet Nintendo’s challenge?