Co-Opetition - Adam M. Brandenburger [58]
But there were other players who had claims on the pie. Go around the Value Net. There was the retail channel—Nintendo’s proximate customers—which included megaretailers such as Toys “R” Us and Wal-Mart. There were Nintendo’s complementors, outside game developers such as Acclaim and Electronic Arts. And there were Nintendo’s suppliers. These included chip manufacturers, such as Ricoh and Sharp, and the owners of cartoon characters and comic-book heroes—such as Disney (Mickey Mouse) and Marvel (Spiderman)—used in some Nintendo games.
Nintendo’s strategy had the effect of limiting the added value of each of these other players in the game.
Start with Nintendo’s customers. How did Nintendo combat the buyer power of a Toys “R” Us or Wal-Mart? Nintendo’s inventory management policy was the key. Cartridges were constantly in short supply. Nintendo may have lost some sales, but the more important effect was that some retailers couldn’t get supplied. The retailers’ position was similar to that of the students in Barry’s version of the Card Game. It was as if there were twenty-six custom ers—actually, there were many more—chasing after Nintendo’s twenty-three black cards. Just like Barry’s students, the retailers had little, if any, added value. Even a giant like Toys “R” Us was in a weak position. As Nintendomania took hold, consumers queued outside stores, and retailers clamored for more product. With games in short supply, Nintendo had zapped the buyers’ power.
The next arena of negotiations concerned the software developers. What happened here? First, of course, Nintendo was in this business itself, doing quite well. Then the security chip allowed Nintendo to set up a carefully managed licensing program. The restriction to five titles a year kept the developers symmetric; no one developer could become too powerful. And because Nintendo developed games in-house, it was even less dependent on any one outside developer. The combined effect was to sharply limit the added values of the licensees.
Nintendo’s suppliers, too, had little added value. The chips were a commodity. As for the game characters, Nintendo hit the jackpot by developing Mario. After Mario became a star, the added values of Mickey Mouse, Spiderman, and other licensed characters were reduced. In fact, Nintendo turned the tables completely, licensing Mario to appear in comic books and on cartoon shows, cereal boxes, board games, and toys.
The name of the monthly magazine, Nintendo Power, summed up the situation quite nicely.
Nintendo’s strategy resulted in a high added value for itself and a low added value for everyone else. In this way, Nintendo was able to capture a giant slice of a medium-sized pie. By contrast, Sony and Nissan are in competitive businesses—each faces many rivals. Don’t confuse the added value of Sony with the much larger added value of televisions, or the added value of Nissan with that of cars. You can still watch television without Sony, although not on a Watchman or a Trinitron, and you can still drive without a Nissan, although not in a Maxima or an Infiniti. As for Nintendo, because it had a monopoly, its added value was essentially the added value of video games. Without Nintendo, there would have been no videogame game. That’s the key to how Nintendo was able to surpass the market values of Sony and Nissan.
The Antitrust Challenge Amidst a climate of strained U.S.-Japanese relations, some people called Nintendo’s practices into question. In late 1989—Pearl Harbor Day, in fact—Congressman Dennis Eckart (D-Ohio), chairman of the House Subcommittee on Antitrust, called a press conference to ask the Justice Department to investigate allegations that Nintendo unfairly reduced competition.
Eckart’s letter to the Justice Department outlined several areas of concern. The first was the alleged anticompetitive purpose of the security chip. The second turned on the licensing agreements with software developers who, the letter alleged, “became almost entirely