Wii Fallacy #6: Wii’s business strategy is market expansion.
Short Answer: No, the business strategy is disruption. The key to market expansion is, first, disruption. This is what Nintendo talks about when they mention “tearing down the wall” between gamer and non-gamer.
Long Answer: It is amusing to watch Microsoft and Sony employees say that Nintendo’s business approach is to simply grow the market. In other words, if Nintendo has the most marketshare, it is by expanding the pie rather than fighting over the wedge. Due to this belief, people say that the Wii will succeed only in getting girls and the elderly to play video games.
It amazes me that Nintendo has emerged with an innocent lamb image. Analysts weren’t even interested in talking about Nintendo because the company was not even competing. “The war is between Microsoft and Sony!” we heard. While this is true, the traditional console war is between Sony and Microsoft. But only until recently is it emerging that Nintendo is becoming a serious threat to both Sony and Microsoft. While Peter Moore joked and praised the Wii, now he fears it. Underneath that wool, people are beginning to smell a tiger ready to pounce.
Microsoft and Sony have built technological Towers of Babel with their consoles. And along comes Nintendo pulling the rug from underneath them. This is the sheer carnage a disruption strategy can unleash.
The definition of ‘disruption’ is to stop and confuse what is currently going on. The sustaining business model for the console video game market is more horsepower and prettier graphics. Nintendo wants to disrupt this. Iwata said, “The time when horsepower alone made the important difference is over.” With the DS successfully disrupting the handheld market, what will the PSP’s successor become? A PSP with better graphics and more horsepower is not the answer. So Sony is at a loss as their business model got smashed. If Nintendo succeeds with the Wii, not only will the Wii outsell its competitors, but Microsoft and Sony would be paralyzed as ‘more horsepower and prettier pictures’ will not be the answer to the next generation of consoles.
Nintendo is not only smashing their old business model to reach non-gamers and those who stopped playing. Nintendo is also smashing its
competitors’ models as well. We do not see the offense that disruption can bring. But Microsoft and Sony are beginning to see it… and fear it.
From an interview with Clayton Christenson, author of the book: “The Innovator’s Dilemma”.
The disruptive technology almost always takes root in a very undemanding application, and the established market leaders almost always try to cram the disruption into the established application. In so doing, they spend enormous amounts of money and fail.This is how Kodak is addressing digital photography. It's trying to make a digital camera good enough so that it can be used interchangeably with the film camera in the same application, which makes digital photography very expensive. The reward for Kodak is that whenever they sell a digital camera, they will also sell film. It's a huge investment, very aggressive—with no growth.
Sony saw the threat of the motion controller and put it into the Playstation 3 controller. But the Playstation model is still the same sustaining one. No wonder Nintendo is laughing at Sony.
Eric Shmidt says,
Business model disruption is much tougher to deal with. Imagine a situation in which community-based wireless networks could route cell phone calls. That would dramatically change the revenues of the cellular phone industry. These companies have high fixed costs. They have a billing structure. That kind of business model change would be very disruptive.
It takes a CEO change to deal with a disruption in business model. There are very few examples of companies whose executives correctly foresaw and maneuvered their company through a transformative business model event. There are some exceptions, but they're quite rare.
Dramatic changes occur with disruption. Most companies do not survive the change. Nintendo has already dealt with disruption in business model by changing their CEO from Yamauchi to Iwata.
From
”The Industrialized Revolution” Christensen's ultimate mission is to empower a legion of leaders not just to shepherd a single disruptive innovation but to become serial disruptors. He admits it has never been done before. "Many successful companies have disrupted once. A few, including IBM, Intel, Microsoft, Kodak, and Intuit have disrupted several times. But as far as I know, no company has been able to build an engine of disruptive growth and keep it running and running."
Nintendo is aiming itself to become a company to build an engine of disruptive growth and keep it running. The successor of the DS will not be a DS-2. The successor of the Wii will not be a Super Wii. Nintendo now views success as a death march and, once successful, will in turn disrupt the game industry in the next console cycle.
No matter how big and rich Microsoft and Sony might be, no matter how many other industries they can leverage to the video game industry, and no matter how smart their managers are, they are too big, too bloated to survive disruption… let alone serialized disruption.
The reason why Nintendo keeps talking about ‘growth’ is, first, to phrase their business plan appropriately (Nintendo’s disruption is growth to Nintendo but a major threat to Microsoft and Sony). While Nintendo has been clear in revealing its business plans, the company has made great lengths to ensure not to trigger the paranoia of Microsoft and Sony… because paranoia is the defense against disruption.
But the more important reason why Nintendo keeps pinning their company’s plans into ‘new market growth’ is because of the sequel to “The Innovator’s Dilemma” which is “The Innovator’s Solution”.
In “The Innovator’s Solution”, Clay Christensen defines disruptive innovation in business into two types: low end disruption and new market disruption.
Low end disruption is new lower cost offerings to existing over-served customers. These over-served customers are the weak end of another company’s customer base. The big company shrugs the upstart off and then pay the ultimate price when the challenger’s technology improves as they start destroying the big company’s primary market from below just like terminates bringing down a mansion.
What Nintendo is doing is offering what Christensen calls “New market disruption”. When a challenger rolls out a product or service previously unavailable is ‘New market disruption’. By doing so, the challenger creates an entirely new market. Just as E*Trade or Schwab turned students into stock jocks, Nintendo aims to turn non-gamers and lapsed gamers into active gamers. This ‘new market disruption’ is a type of disruption that leads to long-term growth.
The Microsoft and Sony employees are wrong to say that Nintendo is aiming to run for girls and the elderly to ‘expand’ the market. What is right to say is that Nintendo is disrupting not only themselves but the entire game industry in attempt to become the serialized disruptor for never-ending growth.
No company has ever done this before. Nintendo aims to be the first.
Schumpeter once called this ‘creative destruction’. Nintendo calls this ‘the New Generation’.
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