With over 80 million sold, the Nintendo Switch is one of the most
loved and best-selling consoles.
But did you know it all started with a series of unknown consoles
that you didn’t even know existed?
It’s not the NES or the Game Boy.
It goes way back — even before Super Mario Bros.
Welcome to part 3: the evolution of Nintendo.
Nintendo’s Game and Watch series became so popular that millions of bootleg
versions were being sold around Asia.
"We must develop something that other companies cannot copy for at
least one year," Hiroshi demanded.
Immediately, Nintendo's designers and engineers worked
together to come up with ideas.
They settled on a new console with swappable game cartridges.
While the concept wasn’t new, Nintendo’s version would have the
quality of fast-speed animation and be priced lower than its competition.
But for both to be possible, it would need custom chips that had to be
outsourced to a semiconductor company.
All the companies that Nintendo approached refused to work with them.
One even considered their proposal absurd.
"Guarantee them three million chip orders within two years," Hiroshi instructed.
"Then they will give us a price."
Eventually, one company did, even though it seemed impossible for
Nintendo to use that many chips.
While their first console was considered a success, they were
only able to sell 30,000 units.
Still, Hiroshi remained convinced that their new console would be more popular
and profitable — as long as they continued to release new and exciting games.
“Forgo profits on the hardware.
It is just a tool to sell software.
Games is where we shall make our money.”
Two years later, Nintendo released its new console: the Family
Computer — dubbed the Famicom.
Just as Hiroshi predicted, it flew off the shelves and brought in more
money than he had ever seen before.
Even a recall to replace defective chips didn’t stop the demand.
Still, Minoru held back from selling the Famicom in the U.S.
The video game market had crashed due to a flood of terrible games, and
companies like Atari were going bankrupt.
Minoru only reconsidered after suggesting the Famicom look more
like a computer, and have a security chip to lockout counterfeit games.
Hiroshi followed his suggestions and added a remote control and keyboard.
He also renamed it the Advanced Video System.
One year later, the AVS launched at the winter Consumer Electronics Show.
Attendees commented that it looked impressive but had no
interest in placing orders.
They still believed that the video game business was dead and didn’t think a
computer-like system would bring it back.
Minoru failed to realize that most people bought computers for
business instead of entertainment.
And when they didn’t need to use it, they wanted to get as
far away from it as possible.
Fortunately, one good thing came out of attending the
show: Minoru met Sam Borosfsky.
Sam ran a marketing firm that worked with several video game
companies, including Atari.
He had a hunch that the AVS would become the next big thing and
convinced Minoru to rebrand it.
Minoru took his advice.
He rebranded the AVS as an all-in-one entertainment center, and renamed it
the Nintendo Entertainment System.
One year later, the NES launched at the summer Consumer Electronics Show.
Attendees’ were still reluctant to place orders.
Some even told Nintendo they missed the opportunity and
didn’t know what they were doing.
“People in the industry are jaded,” Minoru insisted.
“Kids will love it.”
To prove his point, he ran focus groups where kids were able to play with the NES.
“This is s***!” one commented.
They and every other kid in the room hated it.
Depressed, Minoru asked Hiroshi if he should give up.
Hiroshi insisted he keep trying.
“Try to sell the system in one American city,” he advised.
“We must get it into the hands of the customer.
This is the only test that matters.”
Minoru took Hiroshi’s advice and even followed a bold suggestion: selling
the NES in the most challenging city to start in, New York.
After settling into the city, Minoru met with department
stores and electronic retailers.
Every single one of them gave the same answer: they weren’t interested.
So Minoru changed his strategy and offered a risk-free proposal: allowing
them to return any unsold products.
Hiroshi was shocked.
He didn’t understand why it was necessary.
“The ultimate sign of strength is to have so much confidence in your
product that you would almost pay stores to carry it,” Minori insisted.
And he was right.
Stores did agree to carry the NES.
But that didn’t mean they had more faith in the product.
“It’s your funeral,” one buyer warned.
While Nintendo sold half of its NES shipment, retailers determined
it wasn’t a viable product.
Still, Minoru moved forward with testing the NES around the U.S.
He managed to sell more units, but growth was considered slow.
So he reached out to his former neighbor in Vancouver for help: Peter Main.
Peter was a restaurant executive who knew nothing about the video game industry.
But Minoru was willing to bet his outside experience would be valuable
and convinced him to join Nintendo.
After researching the market and industry crash, Peter met with Wall
Street analysts to pitch Nintendo.
They were always looking for the next big thing and potential
clients with strong balance sheets.
Not a single analyst knew anything about Nintendo until Peter sat with them.
Still, every one of them were impressed.
Nintendo had a lock on 90% of the industry in Japan and its
balance sheet had no debt.
Soon after, the Wall Street analysts started telling retailers about Nintendo.
When other analysts heard about the news, it started a chain reaction.
More retailers started carrying Nintendo’s products, and some increased their orders.
Having the top analysts talk about Nintendo gave them a credibility it
never had before and recognition that it was the next big thing in America.
Afterwards, the NES became the top-selling toy in the country.
More than seven million units were sold along with 33 million games.
Best-selling games include Duck Hunt, Super Mario Bros, The Legend of
Zelda, and Mike Tyson’s Punch-Out!.
The numbers validated Hiroshi’s strategy to focus on games and Minoru’s plans
to prevent another market crash.
From then on, the NES became a staple in American households.
Many of them bought an unprecedented number of games
from Nintendo and its licensees.
And since licensees were only allowed to make up to five games
a year, they were encouraged to only develop high-quality ones.
But yet again, success brought on new problems.
A chip shortage hit the U.S.
and the rest of the world.
It became so severe that only a handful of companies survived unscathed.
Nintendo wasn’t an exception.
When the NES took off, Nintendo struggled to meet the demand for its products.
Its hardware units and games required various chips that were scarce from
the global shortage — which became so severe it was compared to the oil crisis.
Even worse for Nintendo, all sides of the industry turned on them.
When Nintendo couldn't fill orders, licensees accused it
of fabricating the shortage.
And companies threatened to sue and even physically attack Peter.
To them, Nintendo was single-handedly destroying their business.
In truth, Nintendo was no exception to surviving the chip shortage unscathed.
It was forced to scrap its own games from its catalogue — including Donkey
Kong — and lost millions of dollars.
Fortunately, morale remained high among Gunpei and his team of
designers, programmers, and engineers.
They came up with a new invention that married the NES and Game and Watch series.
A console that could be played anywhere — in cars, trains, and even planes.
It was called the Game Boy.
When Minoru saw a Game Boy prototype, he had a hunch that it needed a
particular game to drive sales.
And he knew just the perfect one: Tetris.
The game was simple and hypnotic, and the blocks were large
enough to see on a small screen.
But obtaining the console rights would be much like the premise of
the game: a complicated puzzle.
At the time, the Soviet Union owned Tetris, and Andromeda Software was the
only company that was given the rights.
Andromeda contracted Mirrorsoft to produce the game in the UK,
and Mirrorsoft contracted Atari to create a console version.
When Nintendo’s lawyers tried to negotiate for the console rights, they
had a hunch that Andromeda, Mirrorsoft, and Atari didn’t actually have them.
Suspicious, Hiroshi and Minoru sent an emissary to Moscow so that Nintendo
could be the first: Henk Rogers.
Henk was a young game designer who made a version of Go for Nintendo.
Over time, he became one of the few people who became close with Hiroshi.
He didn’t have any connections in Moscow and couldn’t speak
Russian, but knew how to find his way in the middle of any storm.
After arriving in Moscow, Henk discovered that Nintendo’s suspicions were right.
The Soviet Union had yet to give any company the console rights to Tetris.
Andromeda was only given the PC rights.
Later, Henk managed to track down the creator of Tetris: Alexey Pajitnov.
Alexey was a software engineer who developed Tetris while working
for Moscow’s computer center.
When Alexey met Henk, he could tell that he was truly passionate about the game
and understood the beauty of its design.
So he told the Soviet officials that Nintendo was
the best company to work with.
Soon after, Nintendo was given the console rights to Tetris.
Two months later, the Game Boy and Tetris bundle was released.
It sold out within two weeks.
And like Hiroshi and Minoru predicted, games — particularly Tetris — drove sales.
Within three years, Nintendo’s net sales jumped from $2.3 billion to $5.2 billion.
Games accounted for more than half of its profits.
And because of its success, the video game industry started thriving again.
Soon after, Nintendo was seen as a threat by companies outside its industry.
Toyota lost to Nintendo as Japan’s most successful company
and Apple revealed Nintendo was the company it feared the most.
In the following decades, Nintendo was recognized as launching some of the
world’s greatest consoles, including the Game Boy, Nintendo 64, GameCube,
Nintendo DS, Wii, and Nintendo Switch.
It was also recognized as launching some of the world’s best-selling video
game franchises, including Donkey Kong, Mario, Pokémon, Super Smash Bros,
Legend of Zelda, and Animal Crossing.
And amid the coronavirus pandemic, Nintendo became
the richest company in Japan.
Profits soared by more than 400%.
In a Washington Post article, writer Jon Irwin, highlights one of
Nintendo’s biggest keys to survival.
“The company’s work has always pushed back against who can,
or how they should, play games.
They’ve been willing to experiment — and fail — because
they’re fiscally responsible.
More than anything, Nintendo’s sustained success in times of crisis is due to
the simple belief that joy matters.”
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