Until 2006 the video game market was dominated by Microsoft’s Xbox 360 and Sony’s Playstation 3. The video game industry was saturated and floating in the red ocean. Microsoft and Sony were competing against each other, trying to increase their market share and capture more consumers. Nintendo was nowhere in the picture as Microsoft and Sony were fighting a technological battle. Nintendo’s GameCube was released in 2001 and was struggling to find a niche in the video games market. Although it had graphics superior to its competitors Microsoft and Sony and had the Nintendo game library, it failed to attract consumers. GameCube was targeted at the under 18 audience while Microsoft and Sony were targeting an older audience who had greater buying power.
With the creation of Wii in 2006, Nintendo entered the blue ocean. According to Nintendo CEO Satoru Iwata, “While some people put their money on the screen, we decided to put ours into the game experience”, in an attempt to “not just improve the market, but disrupt it.” Nintendo’s blue ocean strategy can thus be described as a disruptive one. Its blue ocean strategy was not aimed at making Nintendo the leader in video game console, but rather bringing non gamers irrespective of age, gender and culture, to start playing by enhancing their experience and making it more fun to play.
Nintendo achieved this by the creation of its revolutionary motion control stick which integrated the player’s movements directly into the video game. Families and friends could play the game together, rather than having to play alone in the dark. Even though its graphics and the console are technically inferior to Xbox and Playstation, this was outweighed by the fun and pleasant experience the gamers had. With this differentiation factor coupled with the low cost of Wii compared to Xbox and Playstation, Nintendo was able to reconstruct an entire new industry, where user experience was more important than high definition graphics.
The Eliminate-Raise-Reduce-Create grid for Wii depicts how Wii was able to break the tradeoff between differentiation and low cost and create greater value for its customers.
Wii eliminated the use of expensive DVD player components, thus reducing the price. It aimed to increase its revenue by allowing the customer to buy peripherals and accessories to enhance their playing experience. It reduced its processor quality and graphics which were no longer important to its buyers who were casual gamers. This allowed it to reduce prices and embrace cost leadership. The motion sense controller and character customization allowed it to differentiate itself from Sony and Microsoft.
Wii has thus taken the video game industry by storm and converted non gamers into casual gamers. The video game industry for casual gamers is no longer dominated by high definition capability, but rather on improving their experience. Wii has thus succeeded in doing this and is sailing smoothly in the blue ocean it has created.
Nintendo has demonstrated low cost leadership and differentiation with the creation of Wii. Can you think of any other company which has achieved both of the above?