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Power Play (A): Nintendo Case Assignment

Models & Frameworks of Strategic Analysis

Submitted y: !
Name Abhishek Kumar Singh "oll No EPGP-04A-005

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Case Summary
The home video-game industry began in 19 ! "ith the #ounding o# Atari$ A#ter riding a dramati% boom and bust in the ear&y 19'0s( most )&ayers &e#t the business$ *intendo o# +a)an then rebui&t the industry( estab&ishing a %ommanding "or&d"ide )osition by the end o# the de%ade$ ,y 1990( *intendo game systems %ou&d be #ound in one out o# every three househo&ds( in both +a)an and the -nited States$ The %om)any.s sto%k market va&ue e/%eeded that o# Sony or *issan$ #ome $ideo %ame Systems 0ideo games "ere a #orm o# home entertainment "hose system %onsisted o# three ty)es o# %om)onent1 a %onso&e( %ontro&&ers( and %artridges$ The %onso&e( essentia&&y a mi%ro)ro%essor-based %om)uter( "as designed to re%eive in#ormation #rom the %ontro&&ers( )ro%ess it a%%ording to instru%tions %ontained in the game %artridge( and send signa&s to the T0 monitor$ 2ontro&&ers "ere hand-he&d devi%es used to dire%t the on-s%reen a%tion$ 3hen a )&ayer )ushed the buttons or 4oysti%k on the to) o# the %ontro&&er( a signa& "as transmitted to the %onso&e$ 2artridges %ontained %hi)s en%oding the instru%tions #or a )arti%u&ar game and "as designed to be inserted into the %onso&e$ Three te%hni%a& #a%tors determined the 5ua&ity o# a video game1 data "idth 6in bits7( %&o%k s)eed 6in 89:7( and the amount o# ;A8 6in bytes7$ Atari Atari( "hi%h means <2he%k= in the +a)anese game Go( "as #ounded in 19 ! by an entre)reneur( *o&an ,ushne&&$ &'e Arcade %ame usiness >n the ear&y 19 0s( %oin-o)erated game ma%hines "ere e&e%trome%hani%a& devi%es that )&ayed games su%h as )inba&&( shu##&eboard( and #ootba&&$ 8anu#a%turers so&d the ma%hine to distributors( "ho so&d or &eased them to o)erators "ho( in turn( )&a%ed the ma%hines in ar%ades( ma&&s( bo"&ing a&&eys( and other &o%ations$ At Atari( ,ushne&& and his team deve&o)ed a %om)uter-based ar%ade ma%hine %a&&ed Pong? in "hi%h t"o )&ayers batted a &ight beam ba%k and #orth bet"een on-s%reen )add&es$ At a time( "hen the best ar%ade game grossed @45 a "eek( Pong ma%hines brought in @!00 a "eek$ &'e #ome Market >n 19 5( ,ushne&& introdu%ed 9ome Pong( the Pong ma%hine that "as %om)ressed do"n to a #e" integrated %ir%uits and designed to be hooked u) to a T0$ A tota& o# 150$000 9ome Pong games "ere so&d in the #irst year$ Aue&ed by the runa"ay su%%ess o# the ar%ade game S)a%e >nvaders( the home video game market 5ui%k&y boun%ed ba%k #rom the 19 ' %rash$ 9o"ever( the -$S$ home video game market %o&&a)sed again in 19'5$ A #&ood o# &o"-5ua&ity so#t"are "as b&amed #or the bust$

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Nintendo in (a)an *intendo( based in Kyoto( +a)an( "as %ontro&&ed by the o&d( estab&ished Bamau%hi #ami&y$ >n the ear&y )art o# this %entury( the %om)any "as the &argest maker o# +a)anese )&aying-%ards( introdu%ing 3esternsty&e %ards and bui&ding a sa&es #or%e that %a&&ed on sho)s a&& over +a)an$ >n 19 '( *intendo started )utting out %oin-o) video games$ >n 19'0( *intendo )ut out Game C 3at%h( a handhe&d %ombination o# video game and digita& %&o%k$ >n 19'1( *intendo had its #irst smash hit "ith the %oin-o) video game Donkey Kong$ &'e Famicom ,y 19'E( there "ere severa& )&ayers in the +a)anese home video game industry( in%&uding Atari( 2ommodore #rom -S( 2asio and Shar)$ The game so&d out #or around @!00-E50$ >n the same year( *intendo &aun%hed Aami%om at a @100 )ri%e and signi#i%ant&y under%ut the %om)etition$ Fvertime( the *intendo engineers &earned to make more %om)&e/ game by using )o"er#u& ne" %hi)s in the %artridge to take over )ro%essing a%tivities #rom the %onso&e 6Su)er 8ario ,rothers and the Gegend o# He&da7$ As a resu&t( makers o# %om)eting home video game system "ithdre" #rom the market$ *icensing *intendo de%ided to &i%ense other %om)anies to deve&o) games #or its system$ ,y 19''( there "ere 50 &i%ensees$ *intendo %ontinued "ith its outsour%ing )o&i%y( "orking "ith some E0 sub%ontra%tors in%&uding many o# the &eading %hi)makers$ Gater( *intendo &aun%hed the Aami&y 2om)uter 2ommuni%ations *et"ork System e5ui))ed by a modem and a s)e%ia& %artridge enab&ed o# intera%ting "ith other termina&s or a %entra& %om)uter$ Nintendo in t'e +,S >n the -S( *intendo estab&ished a subsidiary named as *intendo o# Ameri%a 6*FA7 by 19'0$ At #irst( *FA had a shaky start im)orting *intendo %oin-o) game and attem)t to gain a #ootho&d in the -$S ar%ade game business$ 9o"ever( in 19'E( *FA entered the -$S %onsumer market "ith Game C 3at%h( brought over #rom +a)an$ The )rodu%t( aimed at the toy market( "as #ai&ure$ There#ore( in 19'5( *intendo tried to &aun%h the Aami%om in Ameri%a "ith the games "hi%h "ere redesigned to &ook more &ike a %om)uter and given a hi-te%h )a%kage$ The de%ision "as made to re)osition the video game system as a %onsumer e&e%troni%s )rodu%t rather than a toy$ At that time( *FA targeted e&e%troni%s retai&er and o##ered to sto%k stores #or #ree( "ith retai&er having to )ay #or on&y "hat they have manage to se&& a#ter 90 days$ To the sur)rise o# the trade( %onsumer rea%tion "as #avorab&e$ A nationa& ro&&-out #o&&o"ed in 19'I Marketing and -istribution *FA s)ent about !J o# sa&es budget #or advertising and a&so sought out )romotion )artner su%h as Pe)si( Pro%tor and Gamb&e( and 8%Dona&ds$ >n 19''( Araka"a started a maga:ine named *intendo Po"er #or *ES users "hi%h gave ti)s on e/isting games( announ%ed ne" re&ease( and rated games$ 0ery soon it be%ame the highest %ir%u&ated maga:ine targeted to %hi&dren in -SA$ *intendoKs )rodu%ts "ere so&d through toy stores( mass mer%handiser( de)artmenta& stores( e&e%troni% retai&ers and other out&ets$ *FA a&so set u) intera%tive dis)&ay nation"ide "hi%h a&&o"ed any one to sto) and try *ES$ *FA )ra%ti%ed 3 |Page

%are#u& inventory management in re&easing its ne" games$ >t su))&ied &ess than the retai&ers demand$ There "as a&&egation against *intendo #or abuse o# )o"er to %reate s%ar%ity o# games in market and threatening to %ut o## retai&ers i# they %arried %om)etitorKs )rodu%ts or dis%ounted *intendo ma%hines and Games$ Position in t'e late ./01s ,y 1990( *intendo had a greater than 90J share o# -$S home video game market and one *ES unit #or every three house ho&d in Ameri%a$ ,y 19'9 in %o&&aboration "ith ATCT it tried to bring a&& *ES users under net"orking but #ina&&y the )ro4e%t "as disso&ved$

%ame oy >n A)ri& 19'9( *intendo &aun%hed a handhe&d mono%hrome video game named game boy "hi%h be%ame one o# the best se&&ing games and through 199!( a tota& o# E! mi&&ion game boy "as so&d throughout the "or&d$ *egal Maneu2ers -S +usti%e De)artment investigated a&&egation against *intendo in #ive areas L anti-%om)etitive )ur)ose o# the *ES se%urity %hi)( so#t"are deve&o)er be%ame a&most entire&y de)endent on *intendo due to agreement( %reating arti#i%ia& shortage o# games during 2hristmas 19''( )ra%ti%e o# so#t"are "ith hard"are and e/er%ising market )o"er by threatening retai&ers "ith &imit on their su))&y$ At the same time( the Attorney genera& o# *e" Bork and 8ary&and began investigation #or en#or%ing retai&ers to kee) )ri%e o# game more than @99$95$ *FA signed a %onsent de%ree "ith #edera& Trade %ommission a&ong "ith the attorneys genera&s o# 8ary &and( *e" Bork and E9 other states agreeing to sto) a%tion "hi%h %ou&d be %onstrued as resa&e )ri%e maintenan%e$ A New %ame >n &ate 1991( Seatt&eKs ma4or &eague baseba&& team( the 8ariners "as )ut u) #or sa&e$ ,ut due to be a non *orth Ameri%an *intendo #ai&ed to buy Seatt&eKs ma4or &eague base ba&& team( the 8ariners$

Question
#ow was Nintendo able to build a near mono)oly business after recreating t'e 'ome 2ideo market following boom and bust of Atari!era3

Answer
Nintendos success in the home video game business was achieved by: 4 |Page

Making an innovative new game system which had some competitive advantages such as cheaper, superior image ua!ity, "aster hardware processing and a connector that can be used "or "uture addition o" a modem and keyboard# Preventing the possibi!ity o" product counter"eits by embedding into the system a security chip ensuring that on!y Nintendo$approved cartridges wou!d be ab!e to run on the system# %his is a very important measure because it cou!d !ead customers into negative perception about the company reputation "rom using !ow$ ua!ity pirate products# Moreover, the companys pro"it wou!d be decreased# &eeping the hardware cost down by inc!uding some code into each cartridge# %his code was needed "or conso!e operation to be read into the systems memory each time a game was !oaded# Proposing the po!icy o" insu!ating '() personne! "rom the marketing peop!e in order to improve the chances o" coming up with tru!y "resh game concepts# *ocusing resources on trying to come up with one or two hit games per year rather than with severa! minor successes# +icensing other companies to deve!op games "or its system# >n 19'E( *intendo &aun%hed the Aami%om at )ri%e o# on&y @100 "hi%h is signi#i%ant&y &o"er than the %om)etitors )ri%e( @!00 M @E50$ This a&&o"ed more #ami&ies "ith higher range o# in%ome &eve&s to en4oy the home video game$ >t eventua&&y redu%ed the %om)etition signi#i%ant&y$ The %onso&e( Aami%om( had su)erior gra)hi%s and #aster a%tion but sti&& "as so&d at &o"er )ri%e than the %om)etitors$ This )&an obvious&y %a)tured high attention #rom the market be%ause )eo)&e be&ieved that the %onso&eKs )ri%e "as at or be&o" %ost$

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