Nintendo’s Blue Ocean Turnaround

In 2005, Nintendo’s video game console GameCube fell to a distant third versus Sony’s PlayStation 2 and Microsoft’s Xbox in worldwide sales. At that point, Nintendo’s game designer Shigeru Miyamoto realized that “[console] power isn’t everything…. Too many powerful consoles can’t coexist. It’s like having only ferocious dinosaurs… [hastening] their own extinction.”

To survive, Nintendo realized that it must attract “not only current gamers but… those who had never played before.” For its next console, Nintendo consciously decided to follow a Blue Ocean Strategy to expand the gaming population. Blue Ocean Strategy is the idea that a firm will reap greater rewards by seeking out new customers ignored by current competitors. To enter the “blue ocean”, however, a firm must be willing to sacrifice less valued features at the sake of augmenting those valued by the new customers.

Satoru Iwata, CEO of Nintendo, notes: “To approach lapsed or former gamers and non-gamers,… the logical solution is to re-invent the relationship between player and game. We believe this approach can appeal to a much broader audience but also excite core gamers.”

With its Blue Ocean Strategy, Nintendo invented the Wii. Instantly, the Wii attracted both traditional gamers and non-gamers—women, elder consumers, families. How did Nintendo do this?

Nintendo identified seven factors to characterize any game console: price, movie playing, graphics, physics, fun, game library, and magic wand. Of these, Nintendo sought to raise fun, game library, and magic wand while keeping price in check. That meant sacrificing movie playing, graphics, and physics. Michael Olenick portrays the Wii’s strategy canvas as shown below:



The Xbox 360’s and PlayStation 3’s processor and graphics surpassed the Wii’s. But, the Wii scored higher in emotion and engagement. The Wiimote, Wii’s controller, enabled gamers to use their entire bodies in the games. “No longer [had they] have to remember arcane sequences of buttons.” The experience actually “ended up feeling much more realistic.”

The result: the Wii outsold its competitors by almost a 2:1 ratio. Nintendo sold 56 million consoles as of September 2009. Furthermore, unlike Microsoft and Sony, Nintendo earned a positive gross profit on each console sold (about $50).

Nintendo identifies new market opportunities by adopting the Blue Ocean Strategy. With its Wii console, it sought new customers by promoting fun, game library, and magic wand while intentionally sacrificing graphics, physics, and other high priced features. In addition to the Wii, Nintendo’s Blue Ocean Strategy led to the invention of the DS, a handheld game device, and the Fit board, a step platform for the Wii.

References:
Console wars, http://en.wikipedia.org/wiki/Console_wars, 15 Nov 2009.
Nintendo wii, http://en.wikipedia.org/wiki/Nintendo-wii, 15 Nov 2009.
2006 E3 Expo Speech, http://www.nintendo.co.jp/n10/e3_2006/speech/english.html, 2006.
MKTG 324 Lecture notes.
Nintendo Wii Blue Ocean Strategy - Strategy Canvas, http://www.valueinnovation.net/2008/04/nintendo-wii-blue-ocean-strategy.html, 1 Apr 2008.
How the Nintendo Wii will get you emotionally invested in video games, http://seedmagazine.com/content/article/a_console_to_make_you_wiip/, 16 Nov 2006.