Nintendo: A Winning Hand

 

Nintendo is part of my childhood and I find it interesting to see how completely they dominated the early years of the gaming industry. I based this post on Rogers’s (2003) exposition of their success in a section of his book.

The year is 1986. The world is changing. Technology is advancing with leaps and bounds, but the US gaming world lies in tatters after the dismal failure of early innovator Atari to realize its potential. From the land of the rising sun comes an established entertainment company–originally in playing cards–with a risky but quality invention to inaugurate the era of video games and become in an exceptionally short time a household name: Nintendo. 

As Rogers (2003) expounds in a section of his book, Nintendo intuitively followed the 5 attributes of a successful innovation: 

> Relative Advantage: Nintendo had better graphics than Atari and used perceived (false) shortages to increase demand.

> Compatibility: A shrewd business move, the low-cost console hardware combined with high profit software, along with ads aimed at kids (get ‘em hooked), created a perfect perpetual income stream.

> Complexity: The invention proved simple to run; although being a disguised computer it is plug & play.

> Observability: Along with the ad campaign, all games were introduced in arcades, and as word-of-mouth spread the fever kids demanded the ability to play them on their home consoles, driving up sales.

> Trialability: Targeting toy stores to create displays where kids could try the system and new games, Nintendo even risked a loss by promising to buy-back any unsold merchandise at the start.

Clearly, however, it is not enough just to develop a good idea. Nintendo’s “draconian legal practices” (Murrah, 2024) to limit copycats means they keep a strict proprietary lock on both hardware (consoles) and software (games), as well as making their game cartridges in-house. Sometimes their litigious attempts fail, such as protecting the “Switch” trademark (Mikami, 2019). Overall, from the original to Wii to Switch, they have successfully safeguarded their product from piracy, and though brands like Sega and X-Box now compete they remain overall strongly profitable (see graph below from MacroTrends, n.d.). 

In addition to the legal strategy, an underlying contributor to the success of Nintendo is the economic culture of Japan (Lazzareschi, 1989). With an embrace of free market enterprise that would warm the cockles of Adam Smith’s heart, Japan recognizes and rewards the 1% that do it the best. Rather than putting safeguards in place to ensure that monopolies are discouraged and that competition in technology is encouraged–such as Apple’s swipe to unlock trademark loss–Japan sees it as admirable to protect the company position of king of the mountain. That said, Apple itself has managed to keep a tight lock on much of their proprietary technology, while based in a culture that claims to encourage the wealth to spread and limits the extent of trademarks and copyrights (van den Ende et al, 2013). 

Nintendo’s meteoric rise and longevity through innovation is a classic example that, as Gladwell (2008) makes clear, success is a combination of skill, luck, and environment. Add to that “the persistence that is characteristic of Japanese management” (Rogers, 2003) and you have a triumph like no other.

References

Gladwell, M. (2008). Outliers. Little, Brown and Company.

Lazzareschi, C. (1989, March 19). Lawsuits Against Nintendo Go to Heart of the Way Japan Competes. Los Angeles Times (1923- 1995), p. J1D.

MacroTrends. (n.d.) Nintendo Gross Profit 2010-2023 | NTDOY. Retrieved July 9, 2024 from https://www.macrotrends.net/stocks/charts/NTDOY/nintendo/gross-profit

Mikami, M. (2019, June 30). Nintendo loses trademark fight over “Switch” name in Japan. Japan Trademark Review. https://blog.marks-iplaw.jp/2019/06/30/nintendo-switch/

Murrah, Natalie E., "How Nintendo Sets Itself Apart in the Gaming Industry" (2024). Chancellor’s Honors Program Projects, University of Tennessee, Knoxville. https://trace.tennessee.edu/utk_chanhonoproj/2567/

Rogers, E. M. (2003). Nintendomania: Rapid Adoption of an Entertainment Innovation. In Diffusion of Innovations (5th ed., pp. 246-250). Free Press.

van den Ende, J., Jaspers, F., & Rijsdijk, S. A. (2013). Should System Firms Develop Complementary Products? A Dynamic Model and an Empirical Test. The Journal of Product Innovation Management, 30(6), 1178–1198. https://doi.org/10.1111/jpim.12053

Initial image created from open source images available through Openverse.