Professor Andrew Delios of NUS Business School and Parul Purwar analyze the several hits and misses of Nintendo, and wonder whether Pokémon GO will be a shot in the arm for the beleaguered Japanese giant.
Loosely translated into English, the Japanese word Nintendo means “leave luck to heaven”. The Japanese multinational consumer electronics and video game company Nintendo, however, believes in sheer hard work. After all, it has survived for more than a century. And yet, it is difficult to believe that the Kyoto-based company which started in the 19th century as a playing-cards firm is today one of the world’s largest video game companies by market capitalization. It has to its credit the Nintendo Entertainment System (NES), the world’s first video game console for families, which created iconic games such as Excitebike, Super Mario Bros, and The Legend of Zelda. There is also the home video game console called GameCube (2001), and motion detection remote, the Wii Remote (2007), which revolutionized the gaming industry.
It hasn’t been a home run throughout, however. Grave challenges have come in the form of competition from the likes of Sony’s PlayStation and Microsoft’s Xbox, along with piracy and intellectual property rights issues. The biggest challenge of them all — the recent advent of mobile phones and smartphones in particular, which changed the entire dynamics of the gaming industry. Nintendo failed to take quick action there, and ended up losing its grasp over the market’s pulse. The company has been criticized for not moving fast enough with the changing times. Why, until 2015, its revenue in yen was the same as it had been in 2002, and the company was struggling to maintain its marketshare of 10 per cent. What’s worse, in an unprecedented move, it had to lay off staff.
It is these testing times that Andrew Delios of NUS Business School and Parul Purwar, have documented in the case study “Nintendo: Game On!”. Delios shares it all began as part of student assignments. “Some of my students decided to work on it and it was during the discussions that we realized how the company had an interesting history, had made a significant impact on the gaming industry and yet, it had done nothing new in the past five to seven years and it was burning a lot of cash in R&D, but to no avail,” he says.
The July 2016 case study that was built entirely on archival material – company statements, press releases, annual reports, financial statements, newspaper coverage — not only throws light on the journey of this 125-year-old company, but also brings to fore the lapses along the way. The case study becomes all the more crucial since the company appointed 67-year-old Tatsumi Kimishima as its fifth president in 2015; he had been CEO, Nintendo America, for 13 years. Kimishima was called in to take over the reins after the death of Satoru Iwata, who had played a pivotal role in designing the Nintendo DS and Wii video game consoles. The two authors have also produced “Pokémon GO: Game On!” as a supplement to their earlier case. Developed in partnership between the Pokémon Company (Nintendo has a 32 per cent stake) and Niantic Inc. (Nintendo has a majority stake), Pokémon GO is a free-to-play, location-based augmented reality game, which was released in July 2016 in Australia, New Zealand and the United States. Players have to locate and capture virtual creatures from the Pokémon family in their real-life surroundings with the help of GPS and camera-enabled smartphones.
Although it may be too early to predict how the immensely popular game will impact Nintendo’s future, it has definitely brought the company back into the limelight. It was reported that in the initial days, Pokémon GO users were spending twice as much time on the game as they did on Twitter on a daily basis. Analysts and industry experts, however, point out Nintendo’s clarification that it did not produce the game, nor would it make substantial profits from it. Is Nintendo set to capitalize on the gains from Pokémon GO? Or will it become another miss in the company’s history of losing out on IPR, patents and licensing?
Then and now
The Nintendo history is a long, albeit exciting one, with several hits and misses. Fusajiro Yamauchi founded Nintendo as a playing-card company in 1889; its Hanufada cards had become a family entertainment must-have by early-19th century. Buoyed by the response, Yamauchi started printing cards that were popular in the Western world. His son-in-law Sekiryo Kaneda took over the reins and got the license to use Disney characters for newly-introduced children’s playing cards. Another interesting bit about him: Kaneda changed his surname to Sekiryo Yamauchi. His grandson, Hiroshi Yamauchi, took over in 1949, and tried to shake up things a bit by getting into other sectors such as taxis, hotels, food, and others. They failed to make a mark, however. What did attract attention was Ultra Hand, an extendable arm that sold over a million units and brought in the moolah in the 1960s.
After a few more misses, Nintendo designed groundbreaking arcade game successes with titles such as Donkey Kong, Radar Scope and EVR Race. Gaming giants such as Atari and Magnavox signed licensing deals with the company, and it seemed as if sky was the limit for Nintendo. With the Nintendo Entertainment System (NES), the company made a mark in home entertainment, and Game Box was introduced in 1989, the first handheld portable game system that had the option of changeable cartridges. Hiroshi encouraged healthy competition within the company and invested heavily in R&D. Game Boy marked Nintendo’s foray into the Western world by selling in Europe and the United States. Despite Sony’s PlayStation and Sega’s Genesis coming out in 1994, Nintendo continued to be the global market leader.
It also launched GameCube in 2001, which is also when Hiroshi stepped down from the top post after 53 eventful years. The first non-Yamauchi president Satoru Iwata took over and worked at staving off competition from other portable game consoles. And so there was the Nintendo DS, a dual-screen handheld that came with touchscreen technology and compatibility with other Nintendo products, Nintendo DS Lite, and Wii Remote. But it wasn’t enough. Despite these popular devices, Nintendo’s innovative spirit lost steam, and it showed in company revenues.
Battling for life
The company didn’t sense the scope and reach of online gaming, which became the prime source of gaming with the advent of high-speed internet. With smartphones came games such as Angry Birds and Candy Crush, which changed the rules of the game. To make matters worse, Nintendo had not protected its IPRs, and had to pay a heavy price because of piracy in countries such as Italy, Spain, Mexico, the United States, and France. Nintendo also lost the geographical plot and missed concentrating on the current hot markets for gaming in Asia-Pac.
And while there is no doubt that Pokémon GO has been a roaring success, the question whether it will give Nintendo the much-needed shot in the arm, remains unanswered.
What is interesting in Delios and Purwar’s case study is that it appeals greatly to students who have a history with the brand and a strong affiliation as well. “However, students tend to focus too much on the technical issues, analyze how different it was from Sony, Microsoft, and so on. A lot of thinking went into it when we tried looking at company strategy rather than just the products,” says Delios. He adds how it was fascinating to discover how the industry had changed and how there was now a different set of rules for success in the industry.
The way out for Nintendo? Delios says students came up with suggestions such as the company has to come up with some super hit gaming system or transition into 3DS consoles. “But they also have to appreciate that the industry is increasingly moving away from consoles and that even if they succeed, it will still only make for a small piece of the pie,” he says. He adds that another valid opinion that crystallized into doable action was that Nintendo could become part of a larger company. After all, it is a far smaller company compared to Sony and Microsoft, which have much deeper pockets and being successful in the gaming industry isn’t their core business. “Nintendo has valuable assets, and some other company can leverage on those in a better way in terms of the characters created and the technology it has,” says Delios, adding, “But it needs to do this before they burn all of their money or their characters die in our memories.”
Nintendo: GAME ON! Ivey Publishing case number 9B16M158
Professors Andrew Delios & Parul Purwar
Interview: Andrew Delios: http://casium.net/professor-andrew-delios-national-university-of-singapore-business-school/