Spend 3 Minutes To Become More Competitive Than Sony

This post is a crash course in competition, as illustrated by Sony and Nintendo in the electronic game console market. 

Six lessons in Disruption are posted at the end. But here's the market context first:

• Sony's PlayStation has been in the dominant position in the game console market, but is losing money.
  
• Nintendo's Gamecube system was the small fry of the market, with a third-ranked spot below Microsoft's Xbox.
• The game console market is hyper-competitive and the winning position has tended to be won based on technology leadership. Console makers have engaged in oneupmanship based on incremental technology improvements: better resolution graphics, more realistic games, increased ability to play online. 

But late last year, this changed as Nintendo gave up on that approach and instead created something disruptive, as described in detail in this guest column last November.  Instead of making more realistic more expensive consoles with better graphics, Nintendo's new Wii console is lower-tech and is lower-priced. Wii has been dubbed a gaming system for non-gamers. Nintendo also has a dramatically different business model than Sony or Microsoft: By stripping out a lot of the advanced functionality, it actually makes money on hardware sales despite a lower retail price.

But most importantly, Wii has an important new attribute that is winning a new set of fans, a more interactive, more physical set of controls. This video illustrates that attribute:

 

Net results:

Sony profit slips
Nintendo profits surge, with Nintendo consoles outselling Sony PS3 by 60%.

Six Disruption lessons from Nintendo's Wii:

• Nintendo's market disruption is not about better technology;
• Disruption is not about incremental improvements;
• Disruption is about understanding where the customer experience is not good enough;
• Disruption is about making a product more accessible;
• Disruption is about changing the basis of competition;
• Disruption is about a new business model.

Why Disrupt?

• New revenue growth
• New high-value customers
  
• Sustainable, high return on equity
• More cohesive strategy and management teams
   

Download the CEO Guide to the Benefits of Disruption (pdf) from The Disruption Group

**Other Sources**

Nintendo CEO Satoru Iwata gave a keynote speech in 2006 highlighting his company's strategy to return to the top spot in the game industry. Interestingly, at the time some industry pundits said the speech was anti-climactic because it offered few details of the company's next console (codenamed Revolution) then in development, although Iwata said it had a new controller, would emphasize game play, would target non-gamers and would require a new business model. "Good luck to Nintendo, they are going to need it," concluded one report.

Comments

[Michael Urlocker]

Anonymous: Thanks for your comments. I appreciate your alternative assessment of the Wii.

I am always open to guest columns and alternative interpretations. Thanks for reading and thanks for posting.

[anonymous]

The thing you miss is that the success of the Wii is about better technology -- not a faster processor and graphics engine, but a new design of controller that enables a new way to interact with games.

Nintendo has, for some time, been about a different market segment than Microsoft and Sony have been targeting (generally, under 18 vs 18-34). It has survived in this market segment with simpler, cheaper hardware and more "family friendly" games.

This is not disruptive because it is not about "changing the basis of competition" or "a new business model". More important, it is not about starting simple/ cheap and moving into the mainstream. Nintendo's model doesn't enable it to compete in the market segment that Xbox/ PS3 fight over.

Rather than being new, it is old -- market segmentation and targeting. Interesting, innovative and profitable? Yes. Disruptive? No.