Video Game Consoles: Nintendo's Seventh Generation Bounce Back 23 April, 2012
Abstract Technological supremacy has long thought to be a key success factor in the video game consoles market. This was challenged by the Nintendo Wii, as they managed to achieve success with a technically inferior system to main rivals Sony and Microsoft. However, segmentation analysis suggests that Nintendo did not overturn technological capability as a success factor in the existing market; they created a new market where technology demands were less. Nintendo's real genius in bouncing back in the video games industry was establishing the covert needs of, at the time, a non-existent market, and satisfying those needs through the vision of a product - moreover, an innovative product.
1 Introduction The video games industry can be divided into three broad sectors: hardware, software and infrastructure. The hardware is supplied by the console manufacturers ‒ technology plays a key role here. The software comprises of the games themselves and these are typically developed in-house (by the console manufacturers), or by third-party contractors or independents. Lastly, infrastructure consists of the supporting activities (e.g. publishing and distribution) needed for the products to reach the market successfully (1). The network of these activities forms a value chain which can be divided into five vertical stages as shown in Figure 1.
Customers (the market)
Figure 1 - Video Game Industry Value Chain Image edited from: Ref (1)
Video games had long operated as a "winner-take-all" industry. For console manufacturers, the winner was typically the firm that established market leadership by: (i) exhibiting a software advantage namely through game blockbuster titles, exclusivity deals and/or an extensive library; (ii) being technologically superior to the competitors in terms of graphics, processing power and multi-functionality1; and (iii) orchestrating all elements of the product launch well, particularly manufacturing, global distribution and marketing (2). At the end of the sixth generation in the consoles market, Nintendo were trailing in third to rivals Sony and Microsoft. 1 In the mid 2000s, technological advances in the existing market had become subject to diminishing returns, but they were still a favourable factor in gaining competitive advantage (3).