13084246 MT5007 The Wii Case Study PDF

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THE

CASE STUDY Team Members: Chan Soi Lam Caroline (HT073239H) Janarthanan Saravanakumar (HT073018L) Lim Ching Wu Leslie (HT063039Y) Setho Siu Yuen Clement (HT073022R) Tan Hock Heng Daniel (HT073000U) Tuanku M (HT073069X)

CONTENTS 1.

INTRODUCTION ...................................................................................................................................... 2

2.

EVOLUTION OF THE GAMING CONSOLE ..................................................................................2 2.1 2.2 2.3 2.4

3.

NINTENDO’S STRATEGY ....................................................................................................................4 3.1 3.2 3.3 3.4 3.5

4.

TACKLING PIRACY ...............................................................................................................................19 ESTABLISHING ITSELF IN FITNESS INDUSTRY WITH WII FIT ...........................................................20 DEVELOPING VIDEO GAMES FOR EDUCATION ..................................................................................21 INTEGRATING WII WITH LIFESTYLE PRODUCTS ...............................................................................21

FUTURE STRATEGIES ........................................................................................................................22 8.1 8.2 8.3

9.

CURRENT VALUE CHAIN .....................................................................................................................16 CREATING NEW VALUE CHAINS .........................................................................................................17

THE WAY FORWARD ..........................................................................................................................19 7.1 7.2 7.3 7.4

8.

WHAT IS NINTENDO WII? ...................................................................................................................10 THE DISRUPTIVE INNOVATION MODEL .............................................................................................11 THE WII REMOTE ................................................................................................................................12 STANDARDS ..........................................................................................................................................14 BRAND CULTURE .................................................................................................................................14 WIICONNECT24 ...................................................................................................................................15

NINTENDO WII’S VALUE ECOSYSTEM....................................................................................16 6.1 6.2

7.

INTERNATIONAL PATENT CLASSIFICATION .........................................................................................7 UNITED STATES PATENT CLASSIFICATION ..........................................................................................7 CLASSIFICATION SELECTION USING IPC FOR WII REMOTE AND WIICONNECT24.........................8 CLASSIFICATION SELECTION USING UPC FOR WII REMOTE AND WIICONNECT24 .......................9

OVERCOMING THE COMPETITION ............................................................................................10 5.1 5.2 5.3 5.4 5.5 5.6

6.

SUSTAINING INNOVATION .....................................................................................................................4 DISCONTINUOUS INNOVATION ..............................................................................................................4 MARKET STRATEGY ..............................................................................................................................4 TECHNOLOGY STRATEGY .....................................................................................................................5 BUSINESS STRATEGY ..............................................................................................................................5

EXAMINING THE TECHNOLOGICAL ASPECT OF NINTENDO WII’S PATENTS... 6 4.1 4.2 4.3 4.4

5.

HISTORY OF VIDEO GAME CONSOLE INDUSTRY ................................................................................. 2 HISTORY OF NINTENDO, INC.................................................................................................................3 NINTENDO AS A VIDEO GAME CONSOLE COMPANY...........................................................................3 NINTENDO’S VIDEO GAME CONSOLES .................................................................................................3

MII – THE DIGITAL AVATAR FOR WII’S MII CHANNEL ...................................................................22 GAMING ADVERTISING........................................................................................................................22 WII FIT .................................................................................................................................................22

CONCLUSION..........................................................................................................................................23

Division of Engineering & Technology Management MT5007 Management of Technological Innovation

EXECUTIVE SUMMARY Nintendo Wii is one of the latest console systems to stir up great hype in the gaming industry since its launch. Formerly known as the Nintendo Revolution, it has a great impact on the approach to gaming.

In early 1980s, Nintendo dominated the game console business with their cartridge-based console gaming system. However during the mid 90s they lost their dominance to Sony PlayStation. On 19 November 2006, Nintendo launched its fifth home video game console: Nintendo Wii, the direct successor of Nintendo GameCube, to compete with the Microsoft Xbox 360, Sony PlayStation 3, and the rest of the seventh generation video gaming systems.

Nintendo Wii targets a broader demographic than its competitors. They had created an innovation that incorporates both refreshing gaming experience and user-friendly interfaces to target the previously untapped portion of the demographic. Gamers of all ages, including female players and the elderly, are getting into the action of Nintendo Wii. However, Nintendo Wii still has room for improvements.

This paper investigates the history of Nintendo’s fall from grace and rise again, tracks the technological progress of Nintendo’s various generations of gaming consoles, and analyses the intellectual property strategy by understanding the needs for filing patents in various jurisdictions. Prior to that, the paper also shows the hypothesis adapted to pin-point patents which are filed to protect the Nintendo Wii Remote and WiiConnect24. This paper examines Nintendo’s creative enhancement of a commonly used technology (the accelerometer) in other industries to support its user centric design concept (a methodology which produced other successes such as the Apple iPod). It also delineates that the general value chain of Wii which has made it different its previous innovations, and highlights on the competition Nintendo Wii faces in the dawn of the new gaming millennium. Finally, this paper examines the possible strategies which Nintendo can adopt to ensure continuous market success and dominance.

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Division of Engineering & Technology Management MT5007 Management of Technological Innovation

1.

Introduction

Nintendo Company, Limited is a Japanese multinational corporation founded on September 23, 1889 1

in Kyoto, Japan by Fusajiro Yamauchi to produce handmade Hanafuda cards. In the mid-twentieth century, the company tried entering into several small niche businesses, such as a love hotel and a taxi 2

company. Over time, Nintendo became a video game company, growing into one of the most powerful in the industry and Japan’s third most valuable listed company with a market value of more 3

than US$85 billion.

Since the inception of Nintendo Entertainment System in the early 1980s, Nintendo had become a very well known video game console company with their cartridge-based console gaming system. However, due to keen competition from other companies such as Sega, Sony, and Microsoft, Nintendo soon lost its dominance (starting from the late 90s) to other game consoles which adopted the CD format. In an attempt to bounce back, Nintendo introduced a new game console called Nintendo Wii in 2006. Wii is a radical gaming system using virtual reality that bewildered the gamers. Nintendo was declared “the company to beat” in the games business in 2007. With Wii, Nintendo has broken into a totally different industry instead of competing with the mainstream that nearly brought them down close to extinction. Nintendo Wii targets a broader demographic than its competitors. It has created a disruptive innovation that incorporates both refreshing gaming experience and user-friendly interfaces to target the previously untapped portion of the demographic. Gamers of all ages, including the female players and the elderly are getting into the action of Nintendo Wii. However, Nintendo Wii still has much to improve on.

2.

Evolution of the Gaming Console

2.1

History of Video Game Console Industry

A video game console is an interactive entertainment computer or electronic device that manipulates the video signal of a display device (a television, monitor, etc.) to play a game. The term "video game console" is used to distinguish a machine designed for consumers to buy and use solely for playing video games from a personal computer or arcade machines, which are designed for businesses that buy and then charge others to play. Since video game consoles were introduced in the 70s, it had

1

Nintendo Company History, Nintendo Inc., 2008. The Lucky Birth, N-Sider.com, 2007. 3 K. Takenaka, Nintendo set $85 bln high score, thanks to Wii, Ds, Reuters, 2007.

2

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Division of Engineering & Technology Management MT5007 Management of Technological Innovation undergone many transformations that can be divided into seven generations (as seen in Appendix A) based on the number of ‘’bits’’ the console can support.4

2.2

History of Nintendo, Inc.

Nintendo started as a small Japanese business by Fusajiro Yamauchi near the end of 1889 as Nintendo Koppai. Based in Kyoto, Japan, the business produced and marketed a playing card game called Hanafuda. In 1956, Nintendo’s president Hiroshi Yamauchi began to realize the limitation of playing cards business because it was viewed as a mere tool of gambling. In order to overcome the limitation, Nintendo struck a deal with Disney in 1959 which allowed them to put Disney characters on their playing cards. This opens up new markets where both children and homemakers started purchasing playing cards.5 Due to this success, Nintendo went public in 1962 and became a listed company in Osaka Stock Exchange. Soon after, Nintendo started to venture in other areas including Taxi Company, Food Company, etc. Most of them failed except for their toy making venture.

2.3

Nintendo As a Video Game Console Company

Nintendo struggled to survive in the Japanese toy industry; it was still small at this point, and dominated by already well-established companies such as Bandai and Tomy. Due to the generally short product life cycle of toys, the company had to constantly develop new products. This was the beginning of a major new era for Nintendo. Nintendo then saw the potential in video games and tried to join the industry. The first move was to get a license to distribute Magnavox Odyssey in Japan. After experiencing reasonable success, Nintendo began developing its own video games, for home and arcades.

2.4

Nintendo’s Video Game Consoles

The main focus of this report is Nintendo’s fifth console, Nintendo Wii. Prior to the Wii, Nintendo has released four other consoles since 1983 with varying degree of market success. A brief explanation of those consoles and how they fared in their respective generations can be found in Appendix A.

4 5

A Brief History of the Home Video Game Console, The Game Console. Nintendo Land, 2004.

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Division of Engineering & Technology Management MT5007 Management of Technological Innovation

3.

Nintendo’s Strategy

The following section focuses on the strategy adopted by Nintendo in its game console business. Some of these strategies are demonstrated and elaborated in the later section on how Nintendo Wii overcame its competition. It is important to distinguish the two different video game industries before proceeding with the discussion on the strategies.

3.1

Sustaining Innovation

The mainstream video game industry believes that better technology leads to better games. It anticipates the next-generation video games console to have better and flashier graphics. This industry relies highly on sustaining innovation. Sony and Microsoft are the key advocates in this aspect. They focus on pursuing faster processing speed and better graphics in their game consoles. Sony PlayStation 3 and Microsoft Xbox 360 are examples of such video consoles.

3.2

Discontinuous Innovation

The alternative belief is to use existing technologies and focus on developing unique user interface. This would lead to better gaming experience for a wider audience. The industry recognizes that games should not be limited just to interactions using the game controller. This industry depends on discontinuous disruptive innovation. Nintendo is one of the players in this industry. "...There is the TV set, here is the controller, (held) in both hands. We should not hesitate to crash through the system Nintendo itself created..." - Satoru Iwata, President of Nintendo Nintendo aims to let people rethink about gaming, and make gaming part of their life. In order to achieve that, Nintendo has to carry out bold and brand-new moves, to prevent loss in market share. The following describes the strategies adopted by Nintendo in market, technology and business aspects.

3.3

Market Strategy 1. Reaching Beyond Existing Gamers - Besides the existing supporters, Nintendo targets to open a mass market of first-time game players, women, and older consumers, not typically drawn to this form of interactive entertainment. For example, according to Nintendo’s President, Satoru Iwata, Wii “has been designed to appeal even to people who are not interested in games”.6

6

Brian Bremner, Will Wii Strategy Score?, Newsweek, 20 Sep 2006.

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Division of Engineering & Technology Management MT5007 Management of Technological Innovation 2. New and Easy-to-use Controller - Mastering complex controllers, festooned with buttons, triggers and joysticks have already stopped many novices or non-gamers to be interested in games. Therefore, Nintendo designed consoles with a new, easy-to-use controller, totally different from the conventional one. For instance, the Nintendo DS - touch screen, and Nintendo Wii –wireless controllers, which can be wielded as a weapon, or for various sports equipment during game play. This ease of use has given Nintendo a great advantage over their rivals. 3. Shortening the Game Time - To many people, playing games involves investing enormous amounts of time. With hectic lifestyles, consumers are not keen to try epic games which usually take dozens of hours to complete. Thus, Nintendo designed simple games, such as “Wii Sports”, that only require play time of a few minutes per game. The shortened game time may appeal to non-gamers or casual gamers. 4. The Budget Console - Consumers want great entertainment experiences and products that are value for money. Nintendo aims to provide both. Nintendo launched Wii as a budget alternative (US$ 250)7 to Sony PS3 (US$ 500)8 and Microsoft Xbox (US$ 400)9 in the 7th generation consoles.

3.4

Technology Strategy 1. Do it Differently - Nintendo’s competitors consider both processing power and beautiful graphics as key elements to success, but Nintendo defers. It attracts new gamers with its innovative but not quite cutting-edge console. 2. Moving Closer to Mixed Reality - Games with Nintendo Wii are no longer escapist scenarios, but rely on real-life. For example, while playing “Wii Sports” (golf, bowling, tennis, etc.), gamers used the new controller as they would in reality which allows them to pick up instinctively.

3.5

Business strategy

Open Innovation - In order to obtain a continuous stream of innovations, Nintendo sources talents from its users. Nintendo invites them to develop the video games for the Wii, and will sell them over the WiiShop channel. It is called WiiWare program, and is expected to launch in early 200810. By tapping into the creativity of the crowds, Nintendo can minimize risk, and improve profit margin with WiiWare.

7

Nintendo Playing a different game, The Economist, 26 Oct 2006. Console wars, The Economist, 22 Mar 2006. 9 Microsoft to cut US price of Xbox, BBC News, 7 Aug 2007. 10 P. D. Ridder, Nintendo embraces crowdsourcing, Open Innovators, 28 Jun 2007.

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Division of Engineering & Technology Management MT5007 Management of Technological Innovation From the strategies in the three aspects mentioned above, Nintendo has acquired its own particular strategic positioning, by producing game consoles which can appeal to players in different demographics, promoting good enough concept and providing a better sensation of virtual reality. Meanwhile, Nintendo ensures its profit by providing less costly consoles, and sustains its continuous effort in R&D.

4. Examining the Technological Aspect of Nintendo Wii’s Patents This section discusses the technological aspect of protecting the Nintendo Wii. There are altogether more than 1044 11 patents either filed and or granted by Nintendo beginning from the mid eighties. It is interesting to understand the Intellectual Property strategy adopted by Nintendo to protect the Wii. Based on the findings, both Wii Remote and WiiConnect24 devices stand out from the rest of their competitors. Thus, these are the patents likely filed to protect the Wii Remote and WiiConnect24. This section also investigate on the markets that Nintendo fears the most which require protection, and the rationale for not filing in other countries. It explains the process on arriving with the hypothesis on patents likely filed to protect Nintendo Wii Remote and WiiConnect24. There are numerous ways to determine the patents used for the Wii Remote and WiiConnect24. Both the International Patent Classification and United States Patent Classification were used to make a sound judgment on the patents that were filed for protecting Nintendo Wii Remote and WiiConnect24.

11

Figure 1: Breakdown of Patents Filed according to IPC . 11

Dephion.com.

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Division of Engineering & Technology Management MT5007 Management of Technological Innovation

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Figure 2: Breakdown of Patents Filed/Granted according to Countries .

4.1

International Patent Classification

The International Patent Classification12 (IPC) is a hierarchical patent classification system created under the Strasbourg Agreement (1971) and updated on a regular basis by a Committee of Experts...