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Nintendo Co., Ltd. Company
Overview:
Nintendo, the former manufacturer of Hanafuda playing cards, was founded by
Fusajiro Yamauchi in 1889 Japan. Over a century, Nintendo has been working from a
small company in Kyoto Japan, and become one of the most well known manufacturers
and distributors of electronic entertainment products today. Nintendo mainly produces
hardware and software of home video games systems. The company also operates in the
home entertainment and handheld market. Its hardware products include home console
video game systems and handheld video game systems. The GameCube and GameBoy
series are the most popular and best-selling video game system in the world. Its game
software is usually developed by Nintendo itself and other third party game software
vendors. The sales and popularity of the game brands have a strong impact on the sales
volume of hardware of the company's hardware game consoles. Today, Nintendo has a
market share of about 15% in the US game console market. It competes with Microsoft’s
Xbox, who also has approximately 15% share of market, for the second place in the
industry, while Sony’s Playstation remains the top of the home entertainment system. In
the handheld market, Nintendo dominates the market by selling more than 168 million
GameBoy series worldwide since 1989. Nintendo also introduced the market with its new
Nintendo DS (Nintendo Double Screen) in 2005, which ushers a new revolution of
portable video game system. Moreover, Nintendo has a profound experience and success
in game software industry. Its famous series include “Super Mario”, “Pokemon”, and
“The Legend of Zelda”. Nintendo operates mainly in Japan, North America and Europe.
The company's manufacturing plants are located in Japan and it operates through
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subsidiaries in the Unite State, Canada, United Kingdom, Spain, Germany, France, Italy
and Australia; which serve as headquarters for the western hemisphere.
1980s:
1980s was named the “Golden Age” of video games. Nintendo released its 8-bit
Famicom (Family Computer) in Japan. This coin-operated video game packaged with a
single game, Donkey Kong, which practically ensured the initial success of the system
and it quickly became the hottest selling individual coin-operated machine in the business.
In mid-1980s, Nintendo tested their Famicom market in United State. It was named
Nintendo Entertainment System (NES) outside Japan. Before NES is introduced to the
US market, in order to provide more confidence in retailers, Nintendo agreed to buy back
all the systems that the retailers could not sell. This strategy helped NES sold out 100,000
units in a test market. In the next year the official release of NES, with the game
packaged the systems of Super Mario Bros., etc, hits the rest of North America and
allowed Nintendo to capture about 80% of market share. During the late 1980s, Nintendo
faced a number of business rivals: Sega, Atari and NEC. Each of them brought a new and
unique technology to the market respectively. Atari pioneered the first colour handheld
system, Lynx. However, due to their bad marketing skills and forecast in the industry,
their systems eventually failed. Meanwhile, Nintendo recognized the potential of
handheld market and began to develop their distinctive system. In 1989, Nintendo
released their most popular game system of all time – GameBoy, with the combination of
low cost, portability, simplicity of use, which soon outsell all competing console systems.
In this case, Nintendo was considered to obtain a first mover advantage in this technology.
Nintendo also aware the system’s backward compatibility, which means that original
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GameBoy games could also work on GameBoy Color and GameBoy Advance systems in
the future. It greatly increased the revenue of Nintendo and became dominant in the video
game industry.
1990s:
Since the NEC and Sega had brought their 16-bit game system to North America
in the late 80s, Nintendo released their 16-bit super Famicom with a title of Super
Nintendo Entertainment System. Although the release of SNES was later than the
competitors, Nintendo quickly recovered their lost with a powerful support from their
software games such as Mario, Star Wars, Jurassic Park, Final Fantasy, and Zelda, which
helped Nintendo ensured its place and took the lead in the industry. They also began to
anticipate their 32-bit game system with superior graphics design based on 3D animated
models. During the mid 1990s, a new revolution was emerged. The invention of compact
disc greatly increased the cost advantage of producing game software. Sega and NEC
introduced the market with their gaming system that was compatible with CD format.
Meanwhile, Sony launched their PlayStation with enhanced 3D capability. Unlike
Nintendo, Sony focused on targeting older audience. It moved the average age of gamers
from teen to twenties, which set a new era of video game industry. Facing the
competition of PlayStation, Nintendo introduced the Virtual Boy which powered by a 32-
bit processor with impressive 3D effects. However, this technology was proved to be a
failure because it used an array of red LEDs that would cause eyestrain. Sony’s
Playstation continued to become more successful and stole lots of market share from the
existing gaming companies. In 1996, Nintendo finally released Nintendo64 console in
answer to Sony’s PlayStation. This system is the first 64-bit control system that has four
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controller ports and number of multi-players games. This special feature increased the
network effect of the console: the value of gamer increase as the number of gamer that
played Nintendo64 increases. Unlike Sony and NEC, Nintendo did not forecast the
benefit in using compact discs; it still used cartridges to store their games software. With
limited storage of cartridges (32 megabytes), while competitors’ CD format hold about
650-700 megabytes, the poorer digital animation and audio quality made Nintendo64
resulted in less third party support and made it difficult to compete in the industry.
Although the use of cartridges causes some deficiencies in this system, on the other hand,
it helps Nintendo to create a lock-in to its customer base. Switching cost is high because
changing from cartridges-format to a CD-format system incurs various costs such as time
in retraining and psychological cost. In the late 90s, Nintendo began to concentrate on the
handheld market. It released GameBoy Colour, which keeps backward compatibility so
that the new system can be played with pre-existing GameBoy library. Network effect of
GameBoy series continued to increase as Nintendo develop more advanced level
GameBoy system.
2000s
Sony continued to set new trend of gaming entertainment for both adults and
children, it released their second console called PlayStation 2. With great deal of third
parties support for games software, PS2 rapidly increased their sales volume and began to
take the lead in the gaming console industry in United State. Within the same year,
Microsoft entered the video game console market and introduced Xbox. Along with
superior graphical quality and online play strategy, that enabled gamers to pay one
subscription fee to play all Xbox online games, Nintendo soon noticed the threat of its
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market position resulted from the development of PS2 and Xbox. It quickly returned to
the console market and released GameCube in 2001. GameCube is Nintendo’s first
attempt to use disc-based format in gaming system. However, unlike Sony and Xbox
which support DVD format, it used its own proprietary smaller disc. Most people
believed that this action was taken in order to avoid illegal duplication of games software.
Although the graphics are superior to PS2, the third party support for the system
eventually reduced. Nintendo’s market share was about 35% at that time. Recently,
Nintendo released GameBoy Advance SP in 2003 with a rechargeable lithium ion battery
and a fold-up backlit display. Same as other GameBoy series, it included backward
compatibility and allowed games software in older version to be played in this new
system. Nintendo realized the importance of network effect, and they developed an
accessory item called GameBoy Player. It is a one-inch hardware that connects to the
bottom of GameCube, which allows players to connect with their GameBoy system to the
television. Network effect is greatly increased; high switching cost of system also creates
lock-in of the critical mass. The latest system of Nintendo is called the Nintendo DS
(Dual Screen), which was released in 2005. A lot of gamers have been anticipating for
DS because of its distinctive features. It is liked a PDA system with two LCD screens
(one of them is touch sensitive), rich stereo sound, chat function and local wireless
network of, range at about 30 to 100 feet, up to sixteen players at a time. Although it is
able to play GameBoy Advance cartridges, it is not backward compatible with previous
GameBoy series. Nintendo also produced different colours of DS and allies with Pepsi to
produce a special edition of DS with Pepsi Blue colour. This kind of product
differentiation strategy allows Nintendo to compete with Sony’s first handheld system in
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the market, PlayStation Portable (PSP). PSP can be seen as a portable PS2 along with
various entertainment features such as MP3, MPEG movie player, and wireless
communication. In the Game Developer’s Conference in San Francisco last week,
Nintendo announced their next generation console that temporarily named Revolution. It
is expected to include built in wireless capabilities allowing users to play with each other
over their high-speed Internet connection and backward compatibility with previous
GameCube system.
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