Nintendo is one of Japan's most famous companies. Founded over a hundred years ago,
the company has helped create some of our most treasured childhood gaming memories.
I remember playing Super Mario 64, trying to collect those 120 stars.
Getting up early in the morning to play Diddy Kong Racing. Rushing home to play Goldeneye 007.
Good memories. But I am not going to talk about the Nintendo 64 today.
Instead I am going to talk about a later Nintendo product: the weirdly named Wii.
Introduced in 2006, the Nintendo Wii began as a bold move. Zigging where everyone else was
zagging. And at first it worked brilliantly. By 2013, it had sold over 100 million units.
But the market changed and the innovative strategy ran out of gas. Unlike the N64 or
the PS2, the console is largely forgotten - collecting dust in living rooms everywhere.
This video is about the Wii's rise and fall.
Nintendo began developing what would eventually become the Wii in the wake of the GameCube.
The GameCube was Nintendo's attempt to retake share lost during the Nintendo 64 generation.
It failed in that aspect. The GameCube's target audience was too young - ages 7-16.
Core gamers thought it was "toy-ish". It used a proprietary optical disc format,
while the competing PlayStation 2 doubled as a DVD player. And it could not connect to the Internet.
The PS2 won the generation with over 155 million units sold. The console is still
the best-selling game console of all time. The GameCube ... uhh sold far fewer than that number.
The game console market was more competitive in 2003 than it was at the start of the century. Tech
giant Microsoft had entered the fray with the Xbox, challenging Sony's
Playstation in technical specs and capturing a significant share of the "core gamer" market.
Competing in the technical arms race between Sony and Microsoft seemed more challenging than ever.
There was some good news. Nintendo still had a strong grip of the handheld market
with the Game Boy Advance and its follow up, the Nintendo DS. The resounding success of the DS,
with its 150 million units sold, got Nintendo management thinking.
Nintendo decided to turn a weakness into a strength. Right from the start,
they leaned into the argument that the Wii would not be as powerful as its competitors.
Then-CEO Satoru Iwata said it best:
> While some people put their money on the screen, we decided to put ours into the game experience
The Wii's CPU power was nowhere near that of its console competitors. The Wii had a 729
MHz processor from IBM - less than a third of the 3.2 GHz processors in the PS3 and Xbox360.
It did not have big hard drives. The Xbox had removable hard drives up to 1 TB large.
The PS3 had a 40 GB hard drive. The Wii had just 512 MB of internal flash memory,
not counting SD card storage.
The Wii did not have HD video. It maxed out at 480p.
It could not play DVDs nor could it put out Dolby 5.1 sound.
The PS3 did more than just play DVDs, it can play Blu-Rays too. And while the Wii did have
some online capabilities, it paled compared to the sophistication of Xbox Live and the like.
But what the Wii did have going for it was that it was motion controllable,
family oriented, and offered something new.
Nintendo targeted the Wii as the console for gamers of all ages,
genders and cultural backgrounds. Its small size, compact look and low price
(30% lower than the competition) made it low risk for families to try out.
The company targeted non-traditional gamers outside of the core gamer demographic.
To be more specific, women and seniors over the age of 60.
The first advertisements featured a number of different demographics playing and enjoying the
Wii at home. A later TV campaign featured British actress Helen Mirren, 65 years old at the time.
The games themselves reflected this strategy. Nintendo's early Wii games
featured easy-to-play titles like Brain Training and Wii Fit.
The console itself included the sports simulation game Wii Sports, where players would use the
"Wiimote" motion controller to mimic real life sports actions like swinging a racket.
Wii Sports sold 80 million copies and is Nintendo's best selling game.
In business school, this strategy is referred to as the "Blue Ocean Strategy". The idea
of the blue ocean is that all companies decide in which ocean they want to swim.
Red oceans are bloody, super-competitive markets. People compete on the basis of price,
quality and customer service. They struggle to stand out from the crowd.
Blue oceans on the other hand are unknown markets where things are not as well defined.
Companies in a blue ocean strategy are offering something brand new,
and can sail on with little to no competition. Smooth sailing.
Nintendo's Blue Ocean strategy succeeded wildly. At least at the beginning.
The Wii outsold its competitors right from the start. Its November 2006
launch was Nintendo's biggest ever in the Americas, Japan, and Europe.
The company sold 3.2 million units worldwide before the year was out despite extensive
shortages and was working hard to meet demand. Shortages would continue into the following year.
The Wii received praise for making games more accessible to casual users.
Researchers found a variety of unexpected applications for the Wii - publishing
papers about its usage in physical therapy and Parkinson's treatment.
Business school professors rushed to write papers about the success of the Blue Ocean strategy.
Sales were strong going into 2010,
spurred on by a price cut. But blue oceans never stay blue for very long.
Wii sales started to plateau and then decline through 2010 while those of
its competitors chugged along. By 2012, both the Xbox360 and the Playstation 3
were outselling the Wii on both the hardware and software side. The Wii still outsold them
both in terms of total sales, but by now the platform was deep into its decline.
So what went wrong? Why couldn't the Wii keep up and capitalize on its early momentum?
Sony and Microsoft fell to second and third place within the home gaming console market for this
generation. But they keyed in on certain aspects of what made the Wii so popular and copied it.
In 2010, Sony launched the Playstation Move,
a motion sensing game controller platform for the PS3. You use a handheld wand similar
to the Wiimote and a camera tracks its movements as you move it around.
Microsoft went a step further and launched the Kinect. The Kinect used
infrared sensors to detect movement without the need for any game controller at all.
Sony and Microsoft did not replicate the exact same features as the Wii or the Wiimote.
But they did not have to. They only needed to bring out something that could do a good
enough job in replicating the motion control functionality.
It reminds me of how Instagram launched Instagram Stories, a feature from SnapChat, and henceforth
checked SnapChat's growth. The feature scratched the consumer itch and the novelty went away.
And then there were the gaming partners. The Wii sold more consoles than any other member
of its generation, but it failed to turn those sales into a viable platform for its partners.
To give a better understanding of what I mean by that. Let us briefly talk about developers.
There are two types of games and accessories in the home console gaming industry.
There are "first-party" items - things made by the console manufacturer themselves.
And you got "third-party" items, things made by other companies.
The life of a video game console depends a lot on the third party games and accessories made for it.
Gamers will keep playing a console if they can find great content for it. Grand Theft Auto V
is one example. The game was first released in 2013, but it continues to sell year after year.
It is such an important driver of sales that the game was made available not just to the
PS3 and Xbox360, but also the PS4 and Xbox One, and the PS5 and Xbox X/S after that.
Nintendo has a fine roster of first-party game studios.
These include iconic brands like the Legend of Zelda,
Mario, and Pokemon. But there are only so many games that Nintendo's in-house studios can make.
A console is not going to last unless its third party partners put out hit games for it too.
A few years into the Wii's existence, third parties put out and sold fewer and fewer games
for its platform. By 2011, just 20 third-party games launched in Japan for the Wii. The PS3
on the other hand saw 138 releases, adding more value to the platform and spurring on more sales.
Third-party developers did not adopt the Wii's remote sensing technology.
This appears to be for several reasons.
First, imperfections in the hardware held back the full potential of motion sensing gameplay.
For instance, the first-party Zelda game Twilight Princess.
Designed so that players can slash their Wiimote like a sword,
the developers had to rework the button layout and Wii controls to make them more intuitive.
If it was hard for the in-house developers, it would be even harder for third parties. With one
early game that incorporated the motion dynamics, Red Steel, reviewers found the game "buggy".
One said that its fights were like "two cavemen hitting each other over the head with clubs".
Second, the Wii hardware was underpowered. I know they leaned into it in the marketing
and that people are most creative when given restraints, yada yada yada.
But we cannot deny that it didn't create problems.
The hardware's lack of oomph forced developers to figure out ways to get
around the need to have "photo-realistic" environments and characters. We did end up
with some beautiful standouts. I loved Okami's beautiful Japanese watercolor-influenced art.
But in general, that was an exception and most games failed to impress.
Third, unlocking novel gaming experiences with
the Wii progressively required the purchase of additional accessories.
Whether that was a plastic instrument for Guitar Hero, a Classic Controller, or the Wii
Balance Board, not every user bought these and it restricted each game's addressable audience.
And lastly, 2011 saw the beginning of the rise of mobile games. The casual gamer realized that
they did not have to purchase a $250 piece of hardware and its expensive accessories
to play a simple video game. Now, everyone had a powerful gaming device in their pocket.
The Apple App Store and its free-to-play games stole the casual gaming market out from Nintendo,
disrupting the disruptor. Today, the mobile game industry
is far larger than any console maker out there.
Nintendo attempted to bottle lightning a second time with its next console release in 2012:
the Wii U. But consumers saw its big GamePad controller as nothing more than just another
tablet device and were disappointed by a lackluster lineup of launch games.
The Wii U sold very poorly and Nintendo had to go back to the drawing board.
It sold less than 15 million units, a big drop from the Wii's 150 million plus.
Reflecting on it, you might call the Wii a successful failure. You have to admire how
Nintendo hit a home run off the unproven idea and managed to sell a whole lot of consoles with it.
But to go out on a limb, I would argue that the Wii device did not have a
lasting impact on popular console gaming culture.
An ecosystem needs participation from third parties to last. If your partners cannot
succeed on your platform then your ecosystem is likely to end up being only a flash in the pan.