This month’s Business 2.0 has an article on Nintendo’s new found life with the release of the Wii. While it’s a great comeback story, Nintendo’s core strategy is an interesting one. For the last several years, the major video game console makers, namely Sony and Microsoft, have been in an arms race packing higher-end processors and graphics chips into their consoles. They’ve been competing on creating the best looking and most action packed games for hard-core gamers, a fast-growing multi-billion dollar market. Microsoft and Sony have been selling consoles at a loss, and making up the profits on games. Last I checked, Sony loses about $200-300 on every PS3 and Microsoft loses $75 on every XBox 360. That puts enormous pressure on game sales. Contrast that with Nintendo who makes a $50 profit on every Wii. Nintendo decided a few years ago that they couldn’t and wouldn’t want to compete with Sony and Micrsoft on creating the most powerful console, but rather their strength was continuous innovation around the user experience. They ventured off and created a new wireless, motion-sensitive controller and focused on engaging the audience through interactive games. The new target user was primarily the casual gamer. Nintendo redefined their target market. They targeted people who play games casually and those who don’t play games at all. They pushed their ads to TV, MySpace and other mediums irrelevant to today’s gamers like AARP or Reader’s Digest. Nintendo also gave away their best game, Wii Sports with every console. In 2006, Nintendo sold over 3 million Wii’s. So far, the strategy seems to be helping Nintendo gain back valuable market share and ultimately re-invent itself.
While this strategy seems straightforward, in reality it is far from it. It’s very difficult to “change course” when all of an organization’s heart and soul has been focused on the same common goal for so long. The goals are entrenched in the company’s culture. Changing them requires changing the culture – not an easy feat. Secondly, when choosing a new market make sure it plays to your organization’s strengths. It made sense for Nintendo to innovate around the user experience b/c that’s what they are great at. Finally, before you jump into a new market and shift all of the company’s resources to do so make sure it is big enough for you. The last thing you want to happen is hop into an empty pond!
