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NINTENDO’S REVOLUTION

Case study analysis on Nintendo’s Revolution

Meriel Lalrinhlui, Milan Tom Joby, Mohammad Abuturab Zaidi, Sayanee Mitra, Shimansh

Jain

Christ (Deemed to be) University, Delhi NCR

Department of Commerce, Finance and Accountancy

BUSINESS ENVIRONMENT COH133N

Prof.  Jerush John Joseph

INTRODUCTION

Since the early 1960s, video games have been around. Three MIT students, Steve Russell,

Martin Graetz, and Wayne Witaenem, created the first video game, Spacewars, which

marked the beginning of such an era. It rose to interest pretty soon among young hackers and

tech geeks. Alan Kay created the Dynabook, an early personal computer aimed towards

youngsters, in the late 1960s. In the 1970s, the Dynabook concept paved the way for the PC

and computer game revolutions. The first game console was the Magnavox Odyssey,

developed by engineer Ralph Baer in 1972. The following year, U.S.-based Atari launched a

simple table tennis game called Pong in the United States, which could be hooked up to a TV

set. It was a hit.

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A Japanese international consumer electronics and video gaming firm with headquarters

in Kyoto, Japan, arose amid all of this. Originally known as Nintendo Karuta, the

company was started on 23rd September, 1889 by craftsman Fusajiro Yamauchi and

produced handmade hanafuda playing cards. With the increase of the cards' popularity,

Yamauchi hired assistants to mass-produce to satisfy the demand. Even with a favorable

start, the company faced financial struggle due to operating in a niche market, the slow

and expensive manufacturing process, alongside long durability of the cards, high product

price which impacted sales due to the low replacement rate.

Yamauchi was encouraged by his earlier endeavours to enhance Nintendo's investment in a

research and development department run by Hiroshi Imanishi, a business veteran with

experience in various divisions. Meanwhile, Nintendo established the Nippon Game label and

began selling classic tabletop games such as go, chess, mahjong, and shogi, as well as other

foreign games, outside of Kyoto's Uji City. A few areas specialised in hanafuda card

production were kept as part of the company's restructuring. Nintendo created history in the

early 1970s when it debuted the Nintendo Beam Gun, an optoelectronic handgun designed by

Masayuki Uemura, as Japan's first electronic toy. In 1971, Nintendo teamed up with

Magnavox to build a light gun controller for Magnavox's new home video game console, the

Odyssey, based on the Beam Gun design. In late 2004, Nintendo Corporation engineers were

working on the 'Revolution,' a next-generation, non-traditional video game machine. With

Sony and Microsoft leading the assault in the video console industry, the question was

whether and how the "Revolution" could help Nintendo get back on its feet.

Nintendo's Revolution was a one-handed video game controller that was not a variant of the

joystick, but rather a stubby rod. It was thought that it could help open up video games to a

vastly different audience than the boys and young men who traditionally bought video game

consoles. It not only enabled the creation of games that mimicked real-world movements like
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throwing, hitting, or aiming, but it could also help open up video games to a vastly different

audience than the boys and young men who traditionally bought video game consoles.

“Revolution.” The goal was to attract tens of millions of new customers to the gaming

industry, including individuals who had never played video games before or thought of

them as toys. It was believed to have a new take on gaming that might even attract

mothers, an influential household constituency, thanks to their influence over household

spending  through a combination of hardware design, game-play, and price. 

By 2003, the team had identified several basic concepts for the console:

 Revolution wasn't merely a kid's toy. The console needs to be simple enough for

everyone in the family to play in the living room.

 It had to be created in such a way that it would appeal to women, who, in most

houses, had authority over the living room. This necessitated a compact, well-polished

design.

 In comparison to other devices such as Sony's PlayStation and Microsoft's Xbox, the

console should be affordable. The pricing should ideally be less than 10,000 yen

(about $100).

 Software should be simple enough to play so each member of the family, even if only

for a short period, can do so.

 The console would have to be able to run for 24 hours, consume very little power, and

generate very little noise.

Revolution had to be backwards compatible with existing GameCube games and even games

from prior Nintendo platforms, such as the Nintendo 64, in addition to being acceptable to

mothers. This aided the Revolution's launch by providing a back catalogue, as well as

appealing to long-time Nintendo fans who had purchased GameCube games.

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In this case study we shall analyse the Nintendo's Revolution and the market effect in detail

using PESTLE analysis, SWOT analysis and Porter’s five forces mechanism.

PESTLE ANALYSIS OF NINTENDO’S REVOLUTION

1.1) What is PESTLE analysis?

PESTLE analysis is a business tool that a company uses for the launch of a new product or

service. It is concerned with political, economic, social, technological, legal, and

environmental factors that may or may not affect the product.

In other words, it gives a bird-eye view for the company for researching the market suitable

for its product. It is similar to SWOT analysis but much more comprehensive.

In-depth analysis of PESTLE

P – It defines the Political factors that affect the company. It focuses on how much the

government influences the economy or the industry such as a new tax policy, trade barriers

etc.

E – It defines the Economic factors that directly affect the functioning of a business. For

example, the inflation rate of an economy, demand and supply for a good, interest rates, etc.

S – It defines the social factors that affect the company such as the social trends, culture,

demographics and influence the company.

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T – These factors include the Technological aspects such as new innovations and discoveries

that may affect the market.

L – These are the factors that affect the legal side of the business. The business has to take

care of the laws both inside and outside the business. There is legal provision under the court

of law that every business in the country has to follow and there’s the laws that work inside

the company.

E – These factors include the factors determined by the surrounding environment for example

the climate, weather, geographical location etc.

By analyzing these factors, a company can make better decisions and plan ahead for the

successful launch of their products.

1.1)  PESTLE Analysis of NINTENDO Company

Just as important PESTLE analysis is to other companies, the same applies to Nintendo.

The PESTLE analysis of NINTENDOS has been carefully done as follows:

1.  POLITICAL FACTORS –In terms of political influence, Nintendo has little or no

clout. It does not endorse or support any political presence in its home country, Japan.

It even attempts to prohibit games with any political content, just as it prohibits

people and brands from incorporating political content into the game Animal

Crossing. When purchasing the console, they clearly state in the user manual that it is

only for personal use, which aided the company to some extent. However, the

company must exercise extreme caution because the console is used not only in Japan

but also around the world, and the political presence in other countries should be

thoroughly investigated before exporting it to them.

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2.  ECONOMIC FACTORS –Nintendo has a direct impact on economic factors

because more than 85 percent of their revenue is generated by exporting consoles

around the world and dealing with multiple currency units. Many young people are

said to seek personal loans in order to purchase a Nintendo. And if interest rates rise,

they may seek out other options, as for the same or slightly more than the price of the

Nintendo console, they could purchase a PS4 or XBOX, both of which have far more

games and storage than the Nintendo console. This competition can have a significant

impact on their sales. During the pandemic, while other companies were on the verge

of shutting down, Nintendo had one of the best sales growths because everyone was

stuck at home and video game consoles were popular because people couldn't go out.

3. SOCIAL FACTORS – People's rising incomes had them yearning for more luxuries.

And Nintendos were one of those things that every child wished they had in their

homes. As Nintendo's began to gain market share, the child who does not have a

Nintendo feels very lonely while watching his friends play on it, forcing parents to

purchase one for their child. The company should also take care not to offend many

communities with the themes provided in their gaming consoles, as their products are

sold all over the world.

4. TECHNOLOGICAL FACTORS – When it comes to technological aspects of the

company, Nintendo is extremely innovative. The console industry's technology is

constantly evolving. Cloud gaming, portable gaming sets, and other new technologies

have emerged. All of this has been beautifully crafted in the form of Nintendo's Wii

and their newest addition Switch, which is a powerful and portable gaming console

that can be played anywhere. They see a bright future ahead of them, but they will

need to keep coming up with new innovations to keep up with their competitors.
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5. LEGAL FACTORS – The gaming industry is one of the most affected by copyright

issues. Nintendo also has a long legal history. They have a strong legal side that looks

into the legal aspects of the company and assists in patenting and protecting new

innovations that the company brings up, and if not done properly, the company will

have to deal with a lot of problems. Nintendo has been sued numerous times for

copyright infringement by other companies. “The company has lodged complaints on

YouTube for distributing their copyrighted soundtracks,” according to sources.

6. ENVIRONMENTAL FACTORS – There are numerous environmental factors that

have an impact on the Nintendo company. The laws that govern the gaming industry

have become more stringent, and sustainability is now a goal. The parts used in the

manufacture of gaming consoles have a significant environmental impact, and the

company must take special care of them. According to a Greenpeace report, Nintendo

is the least environmentally friendly console manufacturer. However, the majority of

this is due to the company's anonymity, as well as the correct instructions for disposal

and making the environment a better place being provided on their official website.

SWOT ANALYSIS OF NINTENDO’S REVOLUTION

SWOT analysis is a type of analysis in which managers try to identify the organization's and

its operations' strengths, weaknesses, opportunities, and threats. Its purpose is to specify the

business venture as well as the internal and external elements that are favourable and
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unfavourable to achieving those goals. SWOT analysis has been praised as a faultless tool for

strategic analysis, but it has also been criticised for its flaws.

Strengths, Weaknesses, Opportunities, and Threats (SWOT) are acronyms for strengths,

weaknesses, opportunities, and threats. Internal aspects such as the company's strengths and

shortcomings exist, whereas external factors such as opportunities and threats exist.

Managers can affect strengths and weaknesses, but they are powerless in the face of

opportunities and threats. When it comes to external factors, top executives are completely

responsible for capturing opportunities and avoiding potential risks.

For a reason, Nintendo's name, brand, logo, and goods are well-known in the gaming

business. With gaming in its DNA, Nintendo never looked back, instead focusing on creating

each game as if it were the first and last. As a result, the firm became well-known. Here is

Nintendo SWOT Analysis:

STRENGTHS -  

1. A century of experience - Nintendo was founded in the year 1889 and has 132 years

of experience in games. Initially they produced cards and now are producing high tech

gaming consoles. Nintendo is identified with gaming, and it has the expertise to meet

the requirements of players by continuously offering the finest product.

2. Vast distribution network - Nintendo gained global recognition only because of its

wide reaching and large scale distribution network. Nintendo established a global

distribution network that stretched from Kyoto to Melbourne, Frankfurt, and

Richmond. 

3. Competitive pricing- Even if Nintendo's products are initially costly, once more

gamers are attracted to them, the costs are quickly reduced. This is Nintendo’s

strategy to compete with free to play games. 

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WEAKNESSES- 

1. Over reliance on Switch- Nintendo Switch is currently responsible for 85 percent of

Nintendo's annual revenue, totaling $9.9 billion. If Switch suddenly falls out of

favour, Nintendo will face financial difficulties until it can find another top game to

rely on. 

2. Product failure - The failure of the Wii U shattered trust and tarnished Nintendo's

image. It was a low quality product sold at a really high price. The Wii U console

proved to be Nintendo's biggest product failure.

3. Slow response to demand -  With schools closed and billions of people remaining at

home and practising social isolation, demand for Switch skyrocketed, but Nintendo's

response was slow, resulting in stock-outs and shortages.

OPPORTUNITIES  -

1. Diversify opportunities- Nintendo can diversify its offers by including Game as a

Service or Software as a Service models, thanks to its large repertoire and

capabilities.  

2. Focus on emerging markets-Nintendo may focus on extending its business by

building its industry and stores in China, India, and other emerging regions in Asia,

Africa, and Latin America now that it has a major market share in the United States,

Europe, and Japan.

3. Invest in mobile games- In order to reduce its dependence on Switch it can enter the

market of mobile games as mobile game companies are constantly growing, with a

market value of $95.4 billion predicted by 2022. Nintendo may take advantage of this

lucrative potential by making mobile versions of its popular games available.  

THREATS - 
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1. Stronger substituting- Nowadays people are moving towards online and mobile

games. The demand for handheld and console games is consistently decreasing, so in

order to survive in the market they also have to introduce online and mobile games. 

2. Technological revolution - In the gaming industry, there are numerous startups as

well as industry heavyweights such as Google and Amazon; one of these companies

may obtain a technological advantage and take over the sector, as well as a substantial

portion of Nintendo's market share.

3. Stiff competitions - PlayStation, Xbox, Google, Zynga, Amazon, LG Electronics,

Rovio, BenQ, SEGA, Ubisoft, Electronic Arts, Activision Blizzard, CCP Games,

King, and a slew of other companies are making bold and deliberate steps to gain

market share. 

  

PORTER’S FIVE FORCES ANALYSIS OF NINTENDO’S REVOLUTION

Porter's Five Forces is a framework for examining the competitive environment of a

company. A company's profitability is influenced by the number and power of its competitive

rivals, possible new market entrants, suppliers, buyers, and substitute products.

1. Rivalry among existing competitors - The rivalry among competitors is quite high due to

the following factors: 

a. Number of competitors- There are a large number of competitors for the Nintendos.

Sony’s sub brand play station, Microsoft’s sub brand Xbox and other brands like

Bandai Nanco are some of the competitors. 

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b. Diversity of competitors- One of the biggest competitors of Nintendo like playstation

and Xbox are the ones producing only console games. Whereas Nintendo has a

variety of products varying from mobile phones to consoles. Like in the 1990s when

the race between Nintendo and Sega started to heat up as they kept producing

consoles, a second Nintendo console sold 45 million units globally. 

2. Bargaining power of buyers - The bargaining power of buyers is comparatively low as:

a.  Number Of customers- The bargain power is not in the hands of the individuals.

There are a good amount of customers in the gaming industry which doesn’t really

provide them the bargaining power. 

b.   Differences between competitors- It is the types of products and the prices and the

quality it brings that creates difference between them. Products of Nintendo are

always about being innovative and unique. Nintendo Switch is one of the highest

selling products of Nintendo because of the uniqueness it brings to the market.

3. Threat of substitute products - Nintendo has faced a huge competition in the market. But

Nintendo products are different from their competitors in terms of the types of products it

produces. Nintendo switches are a great example of it. Therefore the threat to substitute

products is low.

4. Threat of new entrants- The threat of new entrants is high due to these factors:

a. Capital requirement- Industries like Console industries require high capital

investment to enter into the market. Because of the hardware component it requires,

software developers that are required, machinery and others.

b.   Brand loyalty- Nintendo entered very early in the market when there was no

competition in the market and was easily able to expand its business which made
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them gain customer loyalty. The brands like Sony and Microsoft have brand loyalty

which allows its sub brands playstation and Xbox to have an easier gain of customer

loyalty in comparison to others. 

5. Bargaining power of suppliers - The bargaining power of suppliers is moderate since the

number of suppliers of hardware are good in number. It doesn’t really affect Nintendo in

terms of suppliers of hardware. Nintendo runs Nintendo Software Technology which was

made to create first party developers for games. Nintendo tries to gain their loyalties as they

can affect the business. 

CONCLUSION 

To conclude everything that has been presented so far, we can see that there were many

factors which hindered the progress and success of Nintendo. Not only the fierce competitors

but also the consumers’ demand affected the advancement of Nintendo. From the above

analysis conducted, it is clear to see that the advancements and achievements Nintendo has

made originally in 1889 with their first ‘Hanafuda’, a playing card game to their latest 2019

Nintendo Switch Lite, a hand-held portable play, has not been a smooth road. 

Nintendo was able to expand their game consoles mainly because of the effective

distribution system, attractive advertising and marketing and the overall management of

the company in the video game market (Gallagher, Scott and Seung Ho Park, 2002). The

wide variety of games available in their consoles also attracted new gamers and attained

loyal customers. 

As mentioned before, Nintendo faced stiff competition from companies like Sony and

Microsoft who launched their own CD-ROM based game consoles like Playstation and Xbox

respectively. The success of these video game consoles quickly put Nintendo at a
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disadvantage in the market and the future of Nintendo became unsteady. In 2001, Nintendo

launched GameCube but could not compete with the updated Playstation 2 for its low-quality

graphics. Avid gamers criticised GameCube but Nintendo dismissed such criticism saying

that the simple design would instead attract new players who were not familiar with fast

paced graphics (Jesper, 2010). 

In terms of technology and innovation, Nintendo could not compete with Sony and

Microsoft with their games being aimed at more hardcore players. Sony was ultimately

considered better in each aspect and was preferred more by consumers in comparison to

Nintendo. Nintendo was then at a huge loss. Under the management and leadership of

Iwata, things started to change for the better. Iwata was already an experienced game

developer and a former president of the game studio Hal Laboratory so his strategies and

work culture proved beneficial for future projects (Kim Sangbeom, Ian Lamont, Hiroshi

Ogasawara, 2011). 

Also seeing that many third-party developers did not want the two prominent companies

namely Sony and Microsoft to dominate the gaming market, as it greatly reduced their

bargaining power in the profit-sharing negotiations ( Kim Sangbeom, Ian Lamont, Hiroshi

Ogasawara, 2011). They wanted to work with Nintendo for its next game console project.

This was an additional positive network effect for Nintendo. The Revolution was undertaken

with the idea of approaching a more family-friendly game which could be played by each and

every family member, designed in a standard design which would be easily acceptable for

mothers, inexpensive, etc. The Revolution was then later renamed as “Wii”. Nintendo has

definitely paved their own path to see the success they have attained today.

References

David Teather, “Nintendo in Sales,” The Guardian, March 8, 2003. Accessed from

http://www.guardian.co.uk/technology/2003/apr/08/business.onlinesupplement in December, 10. 

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MIT 150 Exhibition “Spacewar! Steve Russell, Martin Graetz, and Wayne Witaenem 1961–1962.” Accessed

from http://museum.mit.edu/150/25 in May, 2011.

Philip Likens, “Ralph Baer: The Magnavox Odyssey.” Accessed from http://deptof.com/?p=185 in May 2011.

 “Nintendo History,” Nintendo.co.uk. Accessed from

http://www.nintendo.co.uk/NOE/en_GB/service/nintendo_history_9911.html in June 2011.

“The Big Ideas Behind Nintendo’s Wii,” BusinessWeek, November 16, 2006. Accessed from

http://www.businessweek.com/technology/content/nov2006/tc20061116_750580.htm in November 2010.

Business Strategy Hub. 2021. Nintendo SWOT Analysis. https://bstrategyhub.com/nintendo-swot-analysis/

Accessed in September 2021. 

 En.wikipedia.org. 2021. Nintendo - Wikipedia. https://en.wikipedia.org/wiki/Nintendo Accessed in September

2021.