Co-Opetition - Adam M. Brandenburger [56]
So no one was paying too much attention when Nintendo came on the scene. A century-old Japanese company, Nintendo had, over the years, gradually expanded from making playing cards to making toys, and then to making arcade games. Outside Japan, Nintendo was virtually unknown. But not for long.
Nintendo Power Loosely translated, Nintendo means: “Work hard, but in the end it is in heaven’s hands.”4 Actually, with its move into home video games, Nintendo didn’t leave much to chance. It did everything right. Nintendo set in motion a virtuous circle.
First and foremost, the hardware was a bargain. Nintendo had found a way to reproduce the feel of an arcade game on an inexpensive home machine. The result was a new video game system called the Famicom (Family Computer). Nintendo launched the Famicom in Japan in 1983 and brought the machine, renamed the Nintendo Entertainment System, to the United States in 1986.
In truth, the Famicom was hardly a computer at all—everything was dedicated to a single purpose, game playing. In order to keep the costs down, Nintendo deliberately used a commodity chip, an 8-bit microprocessor dating back to the 1970s. Personal computers at that time—such as the IBM AT or the original Apple Macintosh—were selling for between $2,500 and $4,000. Nintendo’s machine was priced at 24,000 yen (around $100). The Famicom’s price radically undercut the competition, its price so low that many people believed it to be below cost.
Along with its bargain hardware, Nintendo also had superb games. This was no accident. Nintendo used its experience in arcade games to develop a new level of home video game excitement. Its ace designer, Sigeru Miyamoto, was a genius at pushing the performance envelope, creating such smash hits as Donkey Kong, Super Mario Bros., and The Legend of Zelda.
With the inexpensive hardware and a selection of hit games, consumers began buying Nintendo’s machines and games in large numbers. The home video game industry was back in business.
The Virtuous Circle Once sales took off, Nintendo didn’t have to do everything itself. Software houses lined up to write games for the Nintendo system, but they couldn’t without Nintendo’s permission. Wary of the previous industry crash, Nintendo had built a security chip into the hardware to ensure that only Nintendo-approved cartridges could run on the system. The idea was to prevent the rampant copying that had previously destroyed the industry. Software houses could write for the Nintendo system only if Nintendo let them. The result? Nintendo had complete control.
Nintendo’s software licensing program had some remarkable conditions. Each licensee was limited to just five titles a year. That way, developers had to emphasize quality over quantity. All games had to meet a set of standards that included a ban on any excessively violent or sexually suggestive material. Nintendo did all the manufacturing of the approved games. It made its money by charging licensees a large markup on every game cartridge. On top of all this, an exclusivity clause prohibited licensees from releasing the same title for other video game systems for two years.5
The result was a virtuous circle. The cheap hardware and Nintendo’s own hit games got it started. As more consumers started buying the hardware, Nintendo could drive down its manufacturing cost. With a growing base of machines, Nintendo was able to attract outside game developers. This created a positive feedback loop. With more and better games, still more consumers bought Nintendos, leading to a larger base, still lower costs, and even more games. With even more games, Nintendo hardware became even more valuable, leading to yet further sales. The upshot was “Nintendomania.”
Even as demand took off, Nintendo remained cautious about flooding the market. It strictly controlled how