Nintendo

By:

Sange Sherpa

Seung Beom Oh

Dawa Lama

Argyris Roussos

Joseph Albert

Table of Contents

Title Page……………………………………………………………………………………………........1

Table of Contents…...…….…………….…………………………………………………………….2

Executive Summary……………………………………………………………………………………..3

Brief History…………………………………………………………………………………………….4

1950’s…………………………………………………………………………………………..4

1960’s and 1970’s……………………………………………………………………………4

1980’s…………………………………………………………………………………………..5

1990’s………………………………………………………………………………………5

2000’s………………………………………………………………………………………5

Handhelds…………………………………………………………………………………………6

Game & Watch……………………………………………………………………………6

Game Boy……………………………………………………………………………………7

Virtual Boy…………………………………………………………………………………8

Pokemon Mini………………………………………………………………………………9

Nintendo DS………………………………………………………………………………10

Nintendo 3DS………………………………………………………………………………12

Consoles…………………………………………………………………………………………13

NES………………………………………………………………………………………13

SNES………………………………………………………………………………………14

Nintendo 64…………………………………………………………………………………15

GameCube…………………………………………………………………………………16

Wii………………………………………………………………………………………….18

WiiU…………………………………………………………………………………………19

Conclusions…………………………………………………………………………………………20

Works Cited………………………………………………………………………………………....22

Executive Summary

In choosing Nintendo as the company we will evaluate, this paper will analyze the innovations they have implemented over time and how these innovations have guided the company to success and sometimes even failure. Nintendo has a rich history of process innovations, considering that it has been producing home consoles and handheld machines for many years. Over the course of this innovation history, they have shown diversity in that they are able to create dominant designs as well as segment zero systems and enjoy successes in both.

This analysis will be split into three major areas. The first section of this paper will address Nintendo’s history in order to give some background knowledge to the reader. The second section will be focused on the handheld market of Nintendo. The third section will provide information concerning home consoles as well as some of the clever marketing techniques employed to secure its customer base. The second and third sections will each begin with the first machine that Nintendo developed in that domain, such as the NES for the home console section (section 3), and include the subsequent process innovations leading up to present day consoles. The video game market isn’t just about raw innovations, though. Nintendo has had to pay attention to what the consumers want as it is ultimately these consumers who keep Nintendo alive. To broaden the customer base and increase their satisfaction, Nintendo has employed some techniques that provide network externality. Examples of this are backwards compatibility seen in machines like the Wii, or access to the internet for online play using the Wii U which will be discussed within this analysis. Another aspect Nintendo has had to first understand and then harness involves the business techniques they have had to employ and adapt to the changing times. Their business strategies have played an important role in both the successes Nintendo has enjoyed as well as the failures that have blighted their record.

Brief history

Nintendo Co., Ltd: Nintendo was founded in 1889 with producing and selling eastern playing cards called “Hwatu” or “Hanafuda”. Then after almost 60 years, Nintendo became one of the most famous and powerful video game companies in the world. We want to look at their innovation process and how they changed their business system and target markets whenever they experienced a crisis.

1.1950s

2. 1960s & 1970s

3.1980s

4.1990s

5. 2000s

1950s

Nintendo was a traditional Japanese company that was founded in 1889. It started its business with manufacturing eastern playing cards and eventually became Nintendo Playing Card Co. in 1951 (Kohler). The founder, Fusajiro Yamauchi, who had talent for drawing achieved Nintendo’s initial success by selling “Hanafuda”. In those days, there were not many players; he studied the market well correctly predicted the increased demand of gambling in Japan. As Hanafuda continued to generate success, he expanded his business to western playing cards and continued the growing trend by satisfying the demand of casinos. As time went on, the business of Hanafuda started to decline and Nintendo decided to stop manufacturing playing cards and transition into a new business model.

1960s & 1970s

Nintendo delved into different markets of varied types such as a taxi business and a love hotel business (Ashcraft). From this result, Nintendo realized something important from a series of failures and self-reflections. They were not a company which manufactured playing cards, but instead provided “fun” to consumers with their playing cards. Using this newfound knowledge, Nintendo changed the direction of their business by concentrating on creating new kinds of “fun” to distribute to its customers.

1980s

Nintendo restarted their business with a “Video game company” and launched the first portable game console  the Game & Watch (Iwata). This console had the merit of low battery consumption and became a great hit in Japan. One of the reasons why Nintendo is loved by gamers all over the world is that they have their own unique game software. They released their game software called Donkey Kong which was one of the the most famous game softwares in 1981 and eventually became one of the most famous video game franchises to date (Edge). They didn’t stop innovating with the success of the Game & Watch, eventually developing their first video game console for the home called “Nintendo Entertainment System (NES)”. The NES was also the first game console which could use changeable game cartridges, increasing the amount of complementary goods that could be developed and sold for the system. Another beloved game franchise was born called Super Mario Brothers, which propelled Nintendo’s sales to new heights (Cifardi). In 1989, Nintendo developed their second portable game console the Game Boy, which was famous for its durability amongst many other traits (White).

1990s

Nintendo continued growing their market share in the video game market by releasing the upgraded version of the NES called “Super Nintendo Entertainment System (SNES)” (Edge). Consumers could enjoy peak performance with the 16 bit processor and more modern graphic chipset in 1990s. It had some famous game software which were only released for the SNES: Super Mario Bros RPG, The Legend of Zelda, Dragon Quest, and Pocket Monster. However, Nintendo’s rivals came out with new innovations, causing Nintendo develop the “Nintendo 64” in 1996. Unfortunately for Nintendo, Sony took over the international market with their PlayStation and Nintendo failed to recapture the market (McCall).

2000s

In 2001, the GameCube was Nintendo’s technologically advanced response to their failure to capture the marketplace with the Nintendo 64. (Martyn) Although it had high performance hardware, the market continued to revolve around Sony. In 2004, Nintendo decided to change their innovation focus. They instead released their major work, the Nintendo DS Series. At that period, game companies were concentrated on developing higher performance game consoles. While other companies spent a large amount of research and development funds on their new systems, Nintendo created a simple game console which could attract customers regardless of their age or gender. Before the appearance of smartphones, Nintendo introduced a touch sensitive screen to the Nintendo DS Series, which helped popularize the Nintendo system in the video game market (Schreier). Another innovative game console released by Nintendo was the Wii. It was released in 2006 and expanded its range from being simply a game console to employing real-time motion gaming. It provided an immersive experience and could attract new consumers by using a major keyword such as “Fitness” (Seth).

The key to their evolution from being a playing card company to becoming an international video game company was their technological innovation. Many of their products including the Game & Watch, NES, Game Boy, Nintendo DS, and Wii attributed their success to new innovative ideas at the time of their creation. Each consecutive product had radical innovations which led to many successes and few failures. The Game & Watch was “the first portable game console” allowing people play games outside and when they walk around. The NES was Nintendo’s “first video game console for the household” and its innovation allowed people to play games with their friends at home. The Game Boy was “the realization of pocket monster in customers’ hands” and the Nintendo DS was the “new type of game console connected with a touch sensitive screen.” The Wii was “the first game console for the whole family,” allowing the whole family to spend time together instead of just mindlessly watching TV. Nintendo didn’t succeed every time, of course, but they have learned from their failures well and their new knowledge to pave the way for their future success.

Handhelds

Nintendo has always dominated the handheld game market with its new technology and innovations from the beginning. Its rivals, like the Atari Lynx, Sega Game, Sony, and other potential competitors were never as successful as Nintendo in the handheld game market. We will analyze how Nintendo managed to dominate the handheld game market for more than three decades by considering the following Nintendo handheld devices.

1.         Game & Watch

2.         Game Boy

3.         Virtual Boy

4.         Pokémon

5.         DS

6.         3DS

Game & Watch

Game & Watch is the first handheld device designed by Nintendo. Game & Watch is the successor of the famous home console, called the Color TV Game, but in a portable size. The pioneering game designer, Gunpei Yokoi, designed all the games for the Game & Watch product line. Gunpei Yokoi was led to design the handheld devices after seeing a bored businessman playing with his LCD screen calculator, pressing the buttons on it (Crigger). There were a couple of companies like Milton Bradley and Mattel who had designed and sold handheld game devices in the market before Nintendo. Mattel pioneered the category of handheld computer games by releasing the first handheld game that was entirely digital, called “Mattel Auto Race”, in 1976. The handheld device designed by Milton Bradley company in 1979 was called Microvision.

Nintendo released a series of games for the “Game & Watch” handheld device during 1980 to 1991.  The Game & Watch devices utilized innovations like: multi screen, single unit multi-player, directional crosspad, and many others (Area DMG). The first game in this series was called Ball, a single-player game released in 1980. Every handheld device of the Game & Watch series featured and supported only one game. Nintendo designed 60 different games for these handheld devices before creating the Game Boy device. Game & Watch devices were designed as digital watches on which users can play simple digital games. Game & Watch made the handheld game device extremely popular in the video game market. Many other toy companies like Tiger Electronics and Star Wars followed the footsteps of Game & Watch to acquire some market share in flourishing video game market. Nintendo patented the design of multi screen Game & Watch device to keep potential competitors out of their market. In addition, Nintendo constantly improved features like the look, shape, color, and technology every year to meet the customers’ demands. The simple and easy to use interface and addictive game mechanics had attracted a huge group of players of different ages and interests. Nintendo was the first to use the directional pad on handheld devices with the Game & Watch. In early 1980, Game & Watch was a disruptive technology that changed the way people play games in transit or in the general outdoors. It was on the bottom line of the S curve in the early 80’s, beginning to familiarize itself with public and using more research and development funds for little technological progress. From mid 80’s it curved its way up to the peak as the technology was highly adopted by customers and started to use a smaller amount of research and development funds to provide increasingly advanced technological innovations. The Game & Watch product line of hardware sold over 80 million units worldwide. The hugely distributed device sparked conversation amongst peers in the workplace, schools and other social gathering areas. This granted network externality value to the device, bringing a growing customer base to Nintendo. By the late 80’s, the Game & Watch handheld device line became obsolete once  Nintendo introduced the product line of their new handheld device called the Gameboy in 1989.

Game Boy

The Game Boy is the successor of the Game & Watch device line. One of the big technological advances of the Game Boy over the Game & Watch was the ability to swap the different game cartridges in the same Game Boy device. This revolutionized the game industry by separating the hardware device from the software games. The Nintendo game designer Yokoi believed that the game system was better off with old, cheap, and familiar technology, designed in a new way rather than applying new cutting edge technology (Lu). That is why Yokoi designed the Game Boy system with a monochrome LCD screen, even though competitors like Sega and Atari Lynx produced game systems with backlit color screens and 16 bit memory instead of the 8 bit used by the Game Boy. Yokoi knew the cutting edge technology would drain the battery faster and cost more to build. Although, Sega and Atari Lynx produced far superior handheld devices technologically, they were not able to match the success of Nintendo’s familiar Game Boy handheld device.

Nintendo redesigned many of the most popular games used in Game & Watch devices for the Game Boy in order to provide a nostalgic sense in a better quality. The act of releasing Tetris on the Gameboy was selected as #4 on GameSpy's "25 Smartest Moments in Gaming” (GameSpy). This showed the powerful externality value surrounding Nintendo’s most popular game franchises, which Nintendo would continue to utilize throughout their future as a top competitor in the video game market. There were many technological innovation for original Game Boy leading to the creation of the Game Boy Pocket, Game Boy Light, and Game Boy Color. The Game Boy also dominated the game market like the Game & Watch with its addictive games full of beloved characters like super mario, wario, pokemon and many more. Existing  business rivals like Sega and Atari did not have the production capability to compete with Nintendo’s production of the Game Boy. Nintendo did not depend on third party suppliers to build their handheld devices so they were able to produce the quantities of Game Boy devices they needed. Game Boy handheld devices became consumer favourites pushing the customer buying power in the favor of Nintendo. Since there were only a few companies who produced handheld gaming devices there wasn’t much competition to impact the Game Boy’s sales. The vast range of interesting games and customers’ loyalty to Nintendo raised the barrier very high for potential competitors to break into the market. Yukio's theory of lateral innovation of withered technology gave Nintendo the price advantage and feeling of nostalgic technology. According to Yukio, withered technology is technology that has existed for a long time, can be found easily on the market, is familiar to the public and has a low price. The simple design, longer battery life, and a superior selection of games made the Game Boy the most commercially successful handheld game system selling 118 million units worldwide. After the huge success of Game Boy, Yukoi wanted to take the gaming system to next level and set out to create the 3D gaming system called the Virtual Boy.

Virtual Boy

The Virtual Boy is considered the only failed handheld system that Nintendo designed. It was based on an idea called 3D visual effects. The idea of 3D visual effect was great but it was ahead of its time. The 3D technology used by Nintendo was developed by the company called Reflection Technology. Nintendo saw the potential of 3D technology and purchased the worldwide exclusive license to use it for game production. The Virtual Boy was a complex handheld device compared to the previous handheld devices developed by Nintendo. The Virtual Boy game system came in two pieces: a controller and an eyepiece screen and because of this it was not as portable as the Game Boy or the Game & Watch were. The Virtual Boy experienced problems that impacted its sales and success in the video game market. Players made complaints of experiencing headaches and eye problems while using the device.The press and media coverage on the possible eye threat caused by Virtual Boy quickly killed consumer interest in the product and gave parents a reason to choose alternative game systems. A new Japanese law, the Product Liability Act, made companies responsible for any accidents caused by the use of their products (Edward). Nintendo included a warning in the packages, manuals, and pamphlets stating that children below the age of seven should not play the game system, leaving a negative impression on consumers.

The craze of the Game Boy was still at its peak when Nintendo released the Virtual Boy, which also may have contributed to the failure of the Virtual Boy. In addition, it was slightly rushed to get the people on the team free to work on the Nintendo 64. In the United States, Nintendo partnered with Blockbuster to rent out the Virtual Boy system to the public so they could experience it without needing to purchase it (Edward). In this way, Nintendo employed the clever marketing technique of using a third party distributor to increase the device’s network externality by targeting customers of Blockbuster in addition to their own. For example, a Blockbuster customer may rent a Virtual Boy and enjoy it to the extent they purchase one. Nintendo decreased the prize of it from $180 to $150 then $99 and finally to $30 in order to clear all the unit from the market. Nintendo had spent an estimated $25 million on marketing but the Virtual Boy could not find its niche and vanished within a year. The ephemeral lifespan of the Virtual Boy did not meet Nintendo’s expectations of selling 3 million units in the Virtual Boy’s first year. Nintendo spent a lot of funds and time on research and development of the 3D virtual effects but the public was not satisfied with the drawbacks of its technological innovations. Therefore, it could not complete the S curve and died off before it could become widely adopted. Nintendo did not get involved with third parties for the creation of the Virtual Boy system and its  games and complementary goods in order to secure the 3D game technology for themselves. This strategy helped to protect their 3D technology but did not help to create the technological innovations for the Virtual Boy that the Game Boy and Game & Watch enjoyed.

Pokemon Mini

The next handheld device that came into existence was the Pokemon Mini, released in 2001. Unlike it’s old school predecessor the Game & Watch, this device had the successful radical innovation of interchangeable cartridges. As you can tell by the name, the Pokemon Mini was themed around the Pokemon media franchise and thus only games for Pokemon were available. This device was the smallest ever gaming system which had interchangeable cartridges produced by Nintendo (racketboy). It was released in 2001 because the Pokemon franchise was exploding in popularity. This product was developed based on the market demand for Pokemon. It was targeted more as children’s toy rather than a serious video game console. It was also priced relatively low at $39.95. The system did not gain much popularity which is why it was released in small numbers which resulted in the price to increase because of artificial scarcity.

The Pokemon mini featured more radical innovations such as: a real time clock, an infrared port for multiplayer and a rumble motor for haptic feedback while playing games. It consisted of a D-pad and two face buttons along with a side mounted shoulder button. It had a 8 bit, 4MHz Custom CPU, and a monochrome screen of 96X64 pixel. The size of the game cartridges had a memory size of up to 512kb (racketboy). The Pokemon Mini came in various colors, and the battery life on this device, which used just one AAA battery, was very reliable. It also had a very primitive motion control technology in its shock detector, which later becomes the primary technology in the Wii (Diver). The games in the Pokemon Mini were very simple and easy to play which makes it even more interesting. It featured a set of very limited games which is why many users have hacked it to create their own games. The Pokemon Mini definitely set itself apart as the smallest handheld gaming device, but apart from that, it was not a very popular handheld device for the general population.

Nintendo DS

The Nintendo DS was released in 2004, and featured a clamshell design very similar to the Game Boy Advance SP but larger in size. This handheld was notable because of the revolutionary and radical innovation of using two screens, where the bottom screen was touch sensitive (Nintendo Wikia). Nintendo introduced some new features in this handheld device which made it a first mover in addition to establishing the latest dominant design; a built in microphone and handheld wi-fi capability. It also came with a stylus which had a docking port when not in use. Nintendo came out with 4 iterations of the DS, of which each consecutive iteration was an incremental innovation from the previous. Every new version of the DS was different, enjoying new features and better performance overall. The four iterations were the original Nintendo DS, the Nintendo DS Lite, the Nintendo DSi and the Nintendo DSi XL.

The new innovation that Nintendo brought by implementing wifi capability in their handheld was to allow gamers to play each other around the globe and not just locally. It was a definite step forward with the introduction of inbuilt microphone as well which was and still is very helpful while playing multiplayer games, allowing voice chat. The Nintendo DS was very popular and it eclipsed its competition and other game systems of the past by becoming the best selling gaming system for Nintendo, only lagging behind the PlayStation 2 in overall sales. “With over 22 million sold in Japan, the Nintendo DS will end up as best-selling system ever in the marketplace” (Dfcint). Nintendo introduced their four face buttons in this new handheld system which have become very popular, showing up in nearly all gaming controllers released since. Nintendo packed in an ARM7 (touch screen) processor and ARM9 (upper screen) processor coupled with 4MB RAM, and a resolution of 256 X 192 pixel screen (Nintendo Wikia). It came in five different colors and started at $149.95.

The Nintendo DS brought in several new features for the handheld community. Originally it was only meant to be an experimental product but the massive popularity that it gained made itself the successor to the Game Boy Series (Miller). It gained a lot of market share and popularity which is why Nintendo decided to bring forward new iterations of it, leading to the introduction of the Nintendo DS Lite which was much lighter in weight, rectangular in shape, had brighter screen and was more compact than the original DS (Killham). In terms of incremental innovations that the new device brought, the screen had four brightness levels, the microphone was moved to the center of the device, the start/select buttons were relocated and the stylus was made longer and thicker. These changes were made by Nintendo to improve on the slightly flawed design of their previous device. The new iteration was a component innovation because the process of  production remained the same whereas only the components were changed.

The Nintendo DSi was what followed the DS Lite and this device was not like it’s predecessor. The Nintendo DSi was larger than the Lite and had the addition of two cameras as well as a bigger screen (Killham). A major change that was brought in this iteration was the removal of the GBA slot entirely which meant it was not backwards compatible with the Game Boy anymore, unlike the previous models of the Nintendo DS (Miller). This change not only meant that Game Boy Advance games weren’t compatible but some DS games that made use of peripherals were also not compatible with this iteration, which weakened the network externality value of the product. The new features that were brought into the DSi were internal (256MB flash memory) and external (SD card upto 32GB) content storage, and the ability to connect to an online store called the Nintendo DSi Shop. Nintendo did take chances with the removal of the GBA slot which created a lot of negative feedback for its new DSi model but it wasn’t a bad device at all. It brought several new features like the Nintendo DSi Menu, DSi Camera, DSi Sound, DSi Shop, DS Download Play and PictoChat. These were definite steps forward in terms of innovating new technology and adapting to the ever changing era of advanced handhelds. There was one last move that Nintendo decided to make and that was to make the DSi even greater in size, naming it Nintendo DSi XL. This change brought a screen that was twice the size, had a wider viewing angle, bigger battery that lasted even longer, and made it more ergonomic for adults to enjoy playing the device by fitting into their hands more comfortably (Killham). They also made the stylus the size of a fountain pen. The introduction of the DSi XL was not to bring new innovation in the market but to reach a wider audience of buyers who would prefer a bigger device and screens.

Nintendo 3DS

In the fierce video game market, every product that is innovated eventually becomes obsolete soon, requiring new innovations to remain a competitor. The response from Nintendo was the Nintendo 3DS; it was a more powerful version of the DS but with a 3.5 inch autostereoscopic (glasses-free 3D) screen that you could turn on and off, and also featured a 3D camera on the back (Miller). The 3DS was also backwards compatible with the DS and DSi games, boosting its network externality value after Nintendo learned from the mistake they made by abandoning support for GBA games on the DSi. New features such as StreetPass and SpotPass tag modes, augmented reality using its 3D camera, and virtual consoles were a few of the radical innovations that were introduced in the new 3DS model (Killham).

The Nintendo 3DS had a dual-core ARM11 MPCore, single-core ARM9 coupled with 128MB FCRAM and 6MB VRAM. It also had an internal flash storage of 1GB and expandable storage, with  an integrated accelerometer and gyroscope. There weren’t major design changes in the 3DS model except for the addition of the circle pad which is very similar to an analog stick. The addition of the circle pad in the 3DS was the first time this innovation had appeared in any of Nintendo’s handhelds. This new device however did not do quite as well in the market and Nintendo was forced to reduce the price from $249 to $169. But soon, because of various marketing strategies, they would able to get their sales back up. Nintendo had a few new innovations in this device which caused them problems. For example, in order to see the 3D images on the top screen, you had to maintain a proper distance, and the viewing angle was ridiculously small. It also lacked the second analog stick necessary to play first person shooter games (Killham).

The problem with the circle pad was addressed rather quickly by Nintendo by introducing the “Circle Pad Pro which is basically a cradle that adds another analog control on the right side as well as a few extra shoulder buttons” (Killham). Then, next in line came the 3DS XL; a strategy that Nintendo has employed with the DSi and DSi XL. Nintendo released a bigger version of the 3DS as the name suggests. This incremental innovation marked some minor changes in the overall design but mostly it remained the same. The 3DS XL did not replace the 3DS but was sold alongside it because not everyone would prefer larger size of the 3DS XL and instead would prefer the smaller 3DS.

Nintendo had always stayed loyal to their designs and only brought in incremental design updates to their handhelds until they released the 2DS. According to Evan Killham, “The 2DS was a bit of hardware that nobody either expected or really asked for, but it was an interesting experiment” (Killham). As advertised by Nintendo, the 2DS model was a cheaper alternative to the 3DS. There were no major changes in the software; but it did have to compromise in some departments to change its design to be more tablet-like in appearance. The major difference as the name suggests was that the 2DS was not capable of displaying 3D contents, which appealed to consumers who were not interested in the 3D aspects of the 3DS and 3DS XL.

After the release of the 2DS came the latest iteration of the 3DS and called itselves the new 3DS and 3DS XL. The design remained relatively the same but the differences were component innovations. It had additional shoulder buttons, an SNES-inspired palette for the ABXY buttons, a new nub, built in NFC, a faster processor and a port of the Wii RPG. This is where the modern handheld gaming systems are at, containing more integration and advanced graphics in the palm of your hand.

Nintendo managed to sell 70 million DS machines at the five year mark which was their maturity period and was still gaining momentum whereas the 3DS only sold 10-15 million in its lifetime (Napieralski). The 3DS lineups have sold dramatically less compared to its predecessors and Nintendo needs to step up their game in terms of bringing new innovation to the market in order to spur up competition and advancement in the overall gaming experience. The only reason the 3DS sold well in the latter stages was because of the price cut which is not a very good sign for Nintendo and its handheld gaming lineup.

Consoles

NES

In exploring Nintendo’s innovations, the first home console system we will analyze is the Nintendo Entertainment System. The Nintendo Entertainment System, better known as the “NES”, was one of the first of Nintendo’s successful worldwide innovations. Although it is no longer being produced due to more recent and more modern advanced technological innovations, many devices still exist in the world and are still played today. Looking back to the 1980’s, however, shows us the NES in a different light; one where it is at the pinnacle of video game innovation alongside Nintendo’s competitors such as Sega and Atari.

To begin with,  the NES was built in the 1980’s using more advanced technology than the gaming consoles developed in the 1970’s, such as newer processing chips, larger memory and the usage of more than one processor. This change in hardware and software marks one of Nintendo’s earliest product innovations. Nintendo was able to make use of the 6502 processing chip in conjunction with a second processor to gain access to a wider range of colors and superior graphical quality to other consoles which would be deemed obsolete with the creation of the NES, such as Atari’s Video Computer System. Thus, the NES falls under the category of being a competence-destroying innovation. Another innovation that changed the world of gaming forever was the creation of the NES controller which included the D-pad, otherwise known as Directional pad (The part of the controller that looked like a plus symbol). Up until this point in gaming history, arcade machines and consoles used a joystick accompanied by a few buttons. Nintendo’s radical innovation on controller setup has set the precedent for all controllers that would be created in the future, essentially creating a dominant design, as the NES controller would prove more ergonomic than the joystick and button combo (Kent pg.’s 278-280). In modern times, we see controllers for most gaming systems (PlayStation, Xbox, Steam, etc.) utilizing this D-pad with buttons configuration which is a testament to Nintendo’s innovations to the gaming industry.

After having established its market share in Japan, Nintendo sought to expand and capture other niche markets around the world, namely the United States of America. The NES would be the vehicle that would propel Nintendo deep into the video game market of the United States in the late 1980’s. First, Nintendo tested the waters by unveiling 100,000 units in New York, of which 50% sold and gave enough statistical evidence for the company to continue pursuing the capture of market share internationally. With the help of outsider consultation (in particular, a man named Peter Main), the Japanese company managed to sell 2.3 million NES machines in 1987, followed by an enormous figure of 6.1 million in 1988. Nintendo showed, as stated in an article by Grantland, that Nintendo had “Effectively proved to the world that the videogame industry was not dead but had simply been hibernating,” (Harris). The NES would go on to sell just below 62 million consoles worldwide in the entire span of its life cycle (Moriarty).

The machine itself cannot be used for its intended purpose without the complementary good of game cartridges. Nintendo, being a serious competitor in the market, issued policies concerning these game cartridges to protect themselves from their fierce competition. The policies for licensees included: that Nintendo would approve of all games themselves, that the licensees were only permitted five games per year and a binding policy that these games would not be released on other console platforms within two years of having been released for the NES (Kent pg. 372). Some of these video game titles are extremely well known throughout the world, such as Super Mario or The Legend of Zelda, and have entire franchises set up around them, further increasing the NES’s and Nintendo’s network externality.  The characters have become more than just pixels, with products like dolls, posters, clothing, and countless other miscellaneous products being produced that fans love to collect.

       SNES

The next console system in Nintendo’s archive of innovation is the Super Nintendo Entertainment System, or better known today as the SNES. The SNES came about not as an innovation in and of itself, but as an incremental innovation. Its intent was to keep Nintendo in the market due to the NES reaching the end of its S-curve and attempt to prevent Nintendo from becoming a laggard (Kent pg. 422). The worldwide hit that was the NES sparked the flame in companies such as Sega to compete in the video game market in the late 1980’s with machines like the Sega Genesis which is also very well-known and successful in the gaming industry.

To rise to the challenge, Nintendo had to keep up with these competitive innovators also fighting for their market share. On November 21, 1990, Nintendo released the Super Nintendo System in Japan. This machine would prove superior to all competing consoles in terms of aesthetic performance with the focus of innovation on visual and sound capabilities. By including two graphics chips, this product innovation resulted in the SNES having seven graphics modes and 32,000 colors to choose from as well as allowing for higher quality effects such as biaxial rotational (rotation on 2 planes simultaneously) and scaling abilities. However, this focus on the visual and audio components meant that it would fall short of its competitors in terms of processing power. With Nintendo’s main competitor being Sega with the Genesis console that had come out in Japan in October of 1988, Nintendo was essentially trying to invade an established consumer base with the production of the SNES. In 1991, Nintendo’s initial price of $200 when releasing the machine in the United States was unappealing to customers when compared to the $150 cost of the Sega Genesis. The switching cost from the Genesis to the SNES was too high and for new customers in the video game market, the Genesis looked like a better choice as it was cheaper with a higher processing capability. Nintendo tried to cleverly employ the marketing technique of offering a complementary good with the purchase of the SNES – a game cartridge for Super Mario World, one of Nintendo’s most popular franchises (Kent pgs. 432-434) Although the economy of the United States was in recession during the early 1990’s, Nintendo managed to sell many consoles. According to a 1991 issue of Popular Mechanics, in an article written by James Willcox, Nintendo is said to have sold nearly 30 million SNES consoles in the United States and that the distinct feature that brought about these customers was its “mode 7” graphical innovation (Willcox). Thus, the SNES was ultimately a follower instead of a leader during this generation of video game consoles.

       Nintendo 64

The third home console that Nintendo created, the Nintendo 64, was not only a first mover of several new innovations but was also one of the most memorable gaming systems of the 1990’s. With the release of the Sega Saturn (the first mover of the 32-bit CPU processor) and Sony’s PlayStation in 1995, Nintendo needed to create a new console to keep themselves in the market against this intense competition. The response was a corroboration between Nintendo and Silicon Graphics, Inc. to acquire greater product innovations (Fisher). The machines of this outsider company have been utilized in famous films to create special effects, such as the first Jurassic Park and Terminator 2. Together, SGI and Nintendo would create the Nintendo 64 and the name of this console is derived from its 64-bit CPU processor, of which Nintendo was the first mover of, within the gaming industry (Rabowsky). The new console would have the fastest processor amongst its competitors, as well as an independent graphics processor with powerful processes not available to the competition such as the capability of creating 100,000 texture-mapped polygons every second (Kent pg. 513).

Apart from the product innovations of the console itself, the controller of the Nintendo 64 became a prominent product innovation for gaming just as the controller for the NES had. This controller would have a distinctly different shape than its predecessors, with three handles, a plethora of buttons, an analog directional lever (a small joystick that can be maneuvered with the thumb), triggers on the back, and a D-pad. As opposed to the d-pad’s physics where a character within a game would run at a standardized speed, the N64 analog stick allowed players variability in movement speed. For example, if a person nudged the stick lightly in a direction, the in game character would move at a moderate speed in that direction, whereas if a person pushed the stick all the way, the in game character would move at a faster speed in that direction (Kent pg. 523).

The Nintendo 64 was finally released in 1996, in June for Japan and in September of that year for the United States. The units Nintendo had created for the initial release all sold immediately, but they eventually faced problems as time progressed. Although demand for the console remained high, the format of the games as cartridges would prove to be a difficulty for Nintendo’s fight for market share (Kent pg. 538). In marketing this new console, Nintendo opted to stick with cartridges instead of CD-ROM’s due to the built in ROM chips of the cartridges for two reasons. The first reason was that CD-ROM games in systems such as the PlayStation had longer access times, meaning it took longer to load games, and Nintendo felt that this would ruin the gaming experience. The second reason was that the Nintendo 64 would be cheaper due to the lack of a CD-drive in the components, making it more affordable to customers (Kent pg. 511). This decision wouldn’t affect Nintendo as much as it would third party game developers, as game cartridges are an expensive form of creating games (with much less memory) compared to CD’s. On the other hand, this meant that Nintendo would avoid piracy because it would be expensive to make fake copies, deterring this action. It soon became apparent that the game format would ultimately turn out to be a drawback. The amount of new games for the console was low, and the content was little due to the lesser memory and high cost compared to the CD-ROM format. In addition to this, Nintendo also lost an important third party game developer by the name of Square Soft because of their decision to abstain from CD-ROMs (Kent pg. 542). Despite this, according to an article on IGN, the N64 managed to sell a total of just under 33 million consoles worldwide (Moriarty). Due to the fact that Nintendo’s income relies heavily on the complementary good of games as opposed to the actual consoles, things did not look good for Nintendo during this period in time; the decisions they made were highly questionable, but they have managed to withstand the test of time even in these tough situations.

GameCube

The next radical innovation to be released by Nintendo was the GameCube. Released in 2001 in Japan and 2002 in the United States, the GameCube offered many technological innovations that set it aside from its predecessors. The largest difference the GameCube offered when compared to the N64 and older consoles was its switch away from cartridges to CD-ROMs as the format for selling games. Instead of using normal CDs, however, Nintendo formed a contract with Panasonic to create a proprietary CD format to be used for the GameCube. Nintendo wanted to do this for a few different reasons – normal CDs had been pirated on older game systems that used them and the use of CDs required Nintendo to pay a royalty in order to use the format (Gamespy). By creating their own proprietary form of CD called the GameCube optical disc, Nintendo sought to avoid these issues. Unfortunately, the GameCube optical discs came with their own set of problems. The discs were small – measuring only a mere 3-inches across and could only store 1.5GB of data (Chan). Compared to a regular CD at the time, which could store more than triple the amount of data, games on the GameCube suffered from large compression, cut content or even preventing games from releasing. This was similar to the issues Nintendo dealt with during the era of the N64.

The next innovation included in the GameCube consisted of its support for multiplayer gameplay over the Internet. By using a broadband or modem adapter that plugged into the GameCube, you could play with and share data online, thus increasing the GameCube’s network externality value by creating an online ecosystem around its games. Unfortunately for the Nintendo, this feature never took off. Only a few games ever supported online play, most notably the Phantasy Online series. Nintendo’s main competitors, Sony and Microsoft, enjoyed much more success with online play, especially Microsoft. Microsoft's Xbox Live service had better servers, more robust features and online support for more popular games unlike Nintendo’s GameCube. When it came to online play on the GameCube, Nintendo suffered from not properly supporting the technology on its console and thus fell behind its competitors.

Nintendo continued to maintain its core network externality by continuing to support the main game franchises that originated from Nintendo’s earlier consoles. The GameCube enjoyed extremely popular games, such as Super Smash Brothers: Melee and Mario Kart: Double Dash which each sold around 7 million units, as well as Super Mario Sunshine at 6 million and The Legend of Zelda: The Wind Waker which sold roughly 5 million units (Listal). All of these franchises originated from earlier Nintendo consoles and eventually became consumer favorites. By maintaining these franchises Nintendo was able to maintain their core consumer base while continuing to attract new customers.

Compared to Nintendo’s earlier success with the NES and N64, the GameCube ultimately ended up as a flop. Nintendo released the console late, allowing Sony’s PS2, which had released a year earlier, to take a huge lead of 20 million consoles sold (Chan). Sony’s Playstation 2 enjoyed first mover advantage by being the first console to release in its console generation, allowing it to ultimately win against its competition, by securing its market share earlier, making switching cost for customers high. Over the course of its lifetime, the GameCube only sold 22 million units, compared to the massive lead Sony’s PlayStation 2 ended up at with 150 million units sold (Sony). While Nintendo added many new technological innovations to the GameCube when compared to its predecessors, lack of support and proper implementation of them caused the GameCube to stall and not reach the success Nintendo had enjoyed in earlier years.

Wii

After losing fantastically to Sony with the GameCube, Nintendo changed things up with their introduction of the Wii. Released in 2006, Nintendo added more radical innovations to the Wii, the most dramatic of which consisted of motion-detection gaming. The Wii’s main differentiating feature was its support for motion-detection gaming with the use of its Wii remotes, which tracked the user’s motion and used those motions to control gameplay. Nintendo was the first mover in the gaming industry with this revolutionary technology, and allowed Nintendo to establish a dominant design. Nintendo’s motion-detection gaming was a radical innovation because it allowed consumers to play games in a much different way than they previously could with only controllers. This innovation allowed games to be physically engaging and more intuitive to play (Ewalt). Nintendo’s innovation forced its competition to adapt and attempt to also implement motion-detection gaming into their systems in order to prevent a loss in their consumer base, leading to the creation of the Xbox Kinect and PlayStation Move. In the end, however, Microsoft and Sony’s attempts were not nearly as successful as the Wii and never truly took off. According to the Sony UK VP, the PlayStation Move was not properly supported and should be regulated to the casual market (Mynintendonews). In this way, Nintendo had corrected their previous mistake in not securing their consumer base first allowing them to make the switching cost to the Xbox Kinect or PlayStation Move more unappealing to their customers.

Nintendo continued to implement its successful strategy of supporting and rejuvenating  the old and classically successful franchises that had originated during its earliest game consoles. While the Wii’s best selling game was Wii Sports with a staggering 80 million units, this number is inflated because it came bundled with most Wii consoles as a complementary good. Some of the Wii’s other widely successful games consisted of Mario Kart Wii with 32 million copies sold, New Super Mario Brothers with 30 million copies sold, and Super Smash Brothers Brawl with 13 million copies sold. Many games taking advantage of the Wii’s motion gaming were also wildly successful such as Wii Fit with 22 million copies sold and Wii Party with 8 million copies. By maintaining their most popular franchises and having games developed specifically taking advantage of their new innovative motion-detection gaming, Nintendo was able to appeal to both their core consumer base and a larger international audience as well.

While Nintendo’s Wii took a huge step forward by changing the way consumers played video games, Nintendo didn’t want to completely alienate gamers who still wanted to play games the old fashioned way. The Wii supported backwards compatibility with both GameCube games and the GameCube controller, allowing consumers to play both older and newer games on the system, as well as letting them play with either the standard controller or the motion-detection gaming system. This was a strong step to preserve Nintendo’s network externality value, which would have otherwise led to the reduction in size of Nintendo’s ecosystem and loyal fan base. By maintaining this core fan base and working to attract consumers outside of it, Nintendo grew their network externality by increasing the amount of users operating their products. This was important because the Wii implemented and supported online gaming much better than the GameCube had. A larger user base allowed consumers to take advantage of the improved online gaming system because there were more people to play games with online. Many of the Wii’s most popular games thrived because of online play, such as Super Smash Brothers: Brawl and Mario Kart.

Nintendo also employed smart business strategy with the release of the Wii. They released the Wii at a much cheaper price point then its main competitors. At release, the Wii sold for $250, compared to the PlayStation 3’s $500-$600 and Xbox 360’s $300-$400, Nintendo was able to target Segment Zero in the market (Ewalt). A lower price point allowed Nintendo to both attract consumers who didn’t have enough money to afford one of the more expensive options and to help sway the minds of consumers trying to decide on which console to choose. By combining their smart business strategies with their first mover dominant designs, Nintendo enjoyed tremendous success with the Wii, selling over 100 million units worldwide. This was much more successful than their attempts with the GameCube and catapulted Nintendo back to the success they enjoyed with some of their previous consoles.

Wii U

Just like with the NES and SNES, Nintendo’s Wii U was an incremental innovation rather than a radical one. Nintendo attempted to take advantage of both: their own and their competitors successful business practices with the release of the Wii U in order to maintain their dominance in the console market. Nintendo released the Wii U a year earlier than Sony and Microsoft had released their consoles, mirroring the strategy Sony employed with the PlayStation 2 that would lead them to tremendous success in the early 2000’s. They also released the Wii U at a much cheaper price point than both Sony and Microsoft - $300 compared to Sony’s $400 and Microsoft’s $500 (Page). This would reflect their successful strategy with the release of the Wii. Nintendo hoped that by using these familiar strategies they would become the first movers in the new console generation and establish their market share early.

Nintendo’s strategies, ultimately, didn’t pan out for them as they had expected. The Wii U suffered from a variety of issues that prevented it from becoming the grand slam Nintendo was hoping it would be. The first issue with the Wii U was that it still fundamentally relied on Nintendo’s motion-detection gaming. While the motion-detection gaming was one of the major reasons the Wii became such a success for Nintendo, its luster began to fade. With the failure of motion-detection gaming on other systems, and the realization that motion-detection gaming was not effective for the most successful genres of games such as first-person shooters and real-time strategy games, the desire to purchase a console focused around motion-detection gaming decreased. An additional issue that Nintendo had to deal with, concerning the Wii U, was centered on its minimal amount of game franchises. When the Wii U was released, it suffered from having very few games available to purchase. And of those games that were available, very few of them were from Nintendo’s most well loved franchises such as Mario, Super Smash Brothers and The Legend of Zelda. This drove down Nintendo’s network externality because they did not have support for the game franchises that Nintendo’s core consumer base wanted to play. With the reduction of its consumer base, there was less incentive for other consumers to purchase a Wii U (Varman 2).  

Another major issue encompassing the Wii U was its lack of power and radical innovation. Because the Wii U released both earlier and cheaper than its competition, it was also inherently weaker than them in processing power. Combined with the fact that the Wii U was not a radical innovation but instead an incremental innovation, there was very low consumer desire to invest in a Wii U, especially if they already owned a Wii. The Wii U’s lack of power prevented it from being able to play many of the new games being released, and some games were forced to cancel their development such as Project CARS (Polygon). Due to these major issues, the Wii U left a bad taste in consumers’ mouths, so to speak. Although Nintendo employed successful strategies that had worked in the past with their low price point and early movement into the market, the Wii U’s competitors quickly caught up to and ultimately surpassed the sales of the Wii U.

Conclusions

In modern day gaming consoles, we take for granted many of the innovations that Nintendo has incorporated in the industry over the years. Although they haven’t always aimed for high performance machines in terms of processing capabilities, their focus on aesthetically progressive innovations has led them to success. Innovations such as the D-pad, motion-detecting technology, and handheld machines that have withstood the test of time are to be attributed to this company. What is not known to every day videogame customers is the risk taking involved with innovation. Nintendo has proven their willingness to take risks for innovations and their mixed success proves just how risky innovating can be. For example, with the N64 Nintendo had decided to continue producing game cartridges despite the fact that other companies had moved on to CD-ROM’s and this ending up hurting Nintendo in the long run. They have also found massive success, however, with innovations like the NES which was a less risky innovation due to its advanced technological components which greatly benefitted Nintendo in capturing market share worldwide.

Nintendo has been the market leader when it comes to handheld gaming devices as well. No company other than Sony has been able to compete against it and it’s own product lines. “Nintendo has always understood what it needs to do for handheld gaming, which is why it has utterly dominated the handheld gaming sector” (Stuart). Nintendo has been dominant because they have always had the basics right - battery life, cost and sturdiness, which they achieved following the great game designer Yukio's theory of lateral innovation from withered technology. Although, the competitors used color screen and more advanced hardware, most of the Game Boy product line used withered technology such as a monochrome color system to provide better battery life and low production cost. The daring innovation of new games and its work ethics of pushing the boundaries of game space led Nintendo to create the 3D visual based game system called the Virtual Boy. The technology used by this game was ahead of it’s time and it unfortunately commercially failed to find it’s niche market, vanishing within a year.

With the introduction of the DS, Nintendo dictated the standard within the market for handheld gaming consoles. It introduced dual screen technology and multiplayer gaming via wifi, innovations widely praised by Nintendo’s consumers. They expanded their product line with new iterations consisting of incremental and component innovations. Every new iteration of the DS made it more advanced and enjoyable for consumers. This was when they moved on to the new generation of the 3DS in 2011 which featured 3D gameplay, StreetPass, internet browser functionality and compatibility with Nintendo’s virtual console. The 3DS lineup was incrementally innovated to perfect the imperfections that were overlooked. Nintendo always had a tendency to make a larger sibling of whatever handheld they introduced and this has remained consistent with the DS and the 3DS models. Nintendo however has not been doing so well compared to the early 90s when their handhelds had exceptionally high sales which is why they will need to innovate more in terms of expanding the gameplay as well as user interactions and attract buyers to their upcoming new products or else it could mean the end for them in terms of handheld devices. Recent news suggests that Nintendo is looking to get into the mobile platform which does seem like the new era for handhelds because of the huge mobile gaming market based on consumers’ desire to game on their mobile devices instead of a dedicated gaming device. This is a big market that can be exploited by Nintendo since they have always been exceptional at designing innovative, intuitive, simple and fun games.  

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