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Quick takeaways
- Nintendo's transformation from a playing card company to a global multi-billion dollar media monopoly was led by a patriarch who never played a video game.
- Nintendo's success in the gaming industry was fueled by their ability to identify consumer preferences and secure distribution channels through their Disney partnership.
- Nintendo entered the video game market through the success of their light gun shooting ranges and went on to develop groundbreaking consoles like the NES.
- The Famicom's innovative design and successful launch in Japan solidified Nintendo's dominance in the Japanese gaming market.
- Nintendo's strategic moves, such as partnering with Atari and implementing innovative marketing strategies, helped them dominate the US gaming market and become a cultural phenomenon.
Deep dives
Nintendo's Transformation into a Toy Company
In the late 1950s, Nintendo enters the toy market by licensing Disney characters for their playing cards. They expand into selling other Disney-branded toys, which gives them leverage with retailers and secures distribution channels. During the 1960s, Nintendo becomes a prominent Japanese toy company, creating novelty gadgets and toys like the ultra hand and remote control vacuum. Their success is fueled by their ability to identify consumer preferences and using their Disney partnership to gain favor with retailers.
Entry into the Gaming Industry
In the 1970s, Nintendo explores new avenues and enters the gaming industry. They start with light gun shooting ranges in former bowling alleys by adapting toy technology. This venture becomes successful and paves the way for their entry into the video game market.
Emergence of Nintendo as a Video Game Company
Nintendo's focus shifts to the video game market in the late 1970s and early 1980s. They release the Color TV-Game series, simple home consoles that become popular in Japan. This success leads to the development of the groundbreaking NES (Nintendo Entertainment System) in 1983, which features memorable games like Super Mario Bros. and The Legend of Zelda. Nintendo's innovative gameplay and beloved characters propel them to become a dominant force in the gaming industry, gaining global recognition and transforming the company into a household name.
The Launch of the Famicom in Japan
In 1983, Nintendo launched the Famicom (Family Computer) in Japan. The console quickly sold out and became a hit, with sales reaching almost 20 million units in just a few years. The Famicom's success can be attributed to its innovative design, which paired a cheap off-the-shelf CPU with a dedicated picture processing unit (PPU). This allowed for more advanced graphics and accurate ports of arcade games. Nintendo placed a 3 million unit order with Rico, the semiconductor manufacturer, to meet demand. With almost 50% penetration into Japanese households, the Famicom solidified Nintendo's dominance in the Japanese gaming market.
The Decision to Launch the NES in the US
While the Famicom was successful in Japan, the US market was struggling due to the video game crash. However, Nintendo's president, Hiroshi Yamauchi, wanted to launch the Famicom as the Nintendo Entertainment System (NES) in the US. This decision was met with hesitation from Nintendo of America's president, Minoru Arakawa, who believed it was not the right time. However, Yamauchi overruled Arakawa and decided to partner with someone who believed in the project. The specific details of this decision are unclear, but it marked the beginning of Nintendo's entry into the US market.
The Challenging US Market
Launching the NES in the US was a risky move, considering the recent video game crash and the decline in consumer interest. However, Nintendo saw the potential in the US market, which had a high number of households with televisions and a strong GDP per capita. Yamauchi believed that the NES, with its innovative gameplay and high-quality games, could stand out and capture the attention of American consumers. While the market conditions were tough, Nintendo's commitment to fun-centric game design and the unique features of the NES set them apart from their competitors.
The Rise of Nintendo in the US Gaming Market
Nintendo made strategic moves to enter the US gaming market with its Famicom console. They negotiated a deal with Atari to distribute the Famicom globally and agreed on a per unit royalty fee. However, due to Atari's financial decline and the video game crash, the deal fell through. Nintendo decided to release the NES in the US in the 1985 holiday season, starting with a test market in New York City. They implemented innovative strategies such as limiting the number of games third-party developers could release per year and introducing the Nintendo Seal of Quality. These tactics, along with the launch of Nintendo Power and a toll-free game counseling line, helped Nintendo dominate the market, selling millions of consoles and becoming a cultural phenomenon.
Nintendo's Business Model and Success
Nintendo's business model revolved around controlling every aspect of the gaming ecosystem. They focused on high-quality hardware and had exclusive rights to game distribution. By limiting the number of games developers could release, they ensured a higher quality standard for NES games. Nintendo built a direct relationship with customers through initiatives like Nintendo Power and the toll-free game counseling line. Their marketing efforts emphasized their seal of quality and commitment to delivering the best gaming experience. These strategies, along with their dominance in the US gaming market, allowed Nintendo to achieve record-breaking sales and profits, surpassing even major entertainment companies.
Nintendo's Success in Gaming
Nintendo's success in the gaming industry from the 1970s to 1990 is attributed to their excellent execution of their business strategy. They achieved 95% global market share, mainly due to their scale economies and network economies. Nintendo's focus on producing high-quality games, their control over their IP, and their strong customer relationships contributed to their dominance in the industry. They also demonstrated process power through their game design and had a cornered resource in the form of Shigeru Miyamoto, who was responsible for creating iconic games like Super Mario Brothers. While there were missed opportunities and unforced errors along the way, Nintendo's performance during this period deserves an A+ grade.
The Future Outlook for Nintendo
While Nintendo's success in the gaming industry has been impressive, there are challenges and uncertainties on the horizon. The rapid growth of the gaming market and the emergence of new technologies may disrupt the industry and pose threats to Nintendo's market position. Additionally, the company will need to adapt to changing consumer preferences and stay innovative to maintain their competitive edge. However, with their strong IP, loyal customer base, and experienced leadership, Nintendo is well-positioned to navigate these challenges and continue their success in the gaming industry.
1.
Introduction
3min
2.
The LP Show Has Been Renamed
2min
3.
The Rise of Video Games and the Rise of Nintendo
5min
4.
Space War and the Idea of Bringing It Back to the Consumer Market
2min
5.
Computer Space Is a Game That's Based on Computer Space
2min
6.
The 10x, 100x Engineer or Game Designer
2min
7.
Video Game Consoles - The First Home Video Game?
4min
8.
The Magnavox Odyssey - Table Tennis
3min
9.
Atari Becomes Sequoia Capital's Very First Investment
2min
10.
Video Games and the Home Video Game Industry
2min
11.
Atari VCS VCS - The Video Computer System
2min
12.
The Video Game Industry Takes Off Like Never Before
2min
13.
Atari 2600 - The Magic of the Swapable Game Cartridges
2min
14.
Activision vs Atari - Is That Really the Case?
2min
15.
Video Games
2min
16.
The Home Video Game Industry Is Just Decimated
2min
17.
The Toy Industry Is Not New
2min
18.
The Video Game Industry Is Not Like Toys
2min
19.
Pilot's Tip for Founders After Starting Three Companies
2min
20.
Salesforce CRM - Is Your Competitors a Juggernaut in the Space?
2min
21.
Nintendo and the Playing Card Business
3min
22.
Playing Cards, Fun Games
3min
23.
Nintendo and the Yakuza
4min
24.
The Next Yamauchi Running Nintendo
2min
25.
The New Yamauchi - The New Nintendo
2min
26.
Nintendo Branded Japanese Disney Cards
2min
27.
The Toy Company of the Future, Gunpei Yokoi
5min
28.
Nintendo Home Video Game Consoles - The Story of the Odyssey
2min
29.
The Light Gun in the Nintendo Wii
2min
30.
The Japanese Home Video Game Industry
2min
31.
Atari 2600 Home Video Game Console
2min
32.
Is There a Constraint I'm Going to Relax Here?
2min
33.
The Fifth Now Cycle of the Yamauchi Family
2min
34.
How to Enable Revenue With Vanta
2min
35.
Nintendo of America - Awakening in the 80s
2min
36.
Nintendo of America
2min
37.
A Space Invaders Knock Off
3min
38.
Nintendo of America's Strategy of Something Is Hot
2min
39.
Game Design - I Can't Give You Engineers
2min
40.
Donkey Kong
2min
41.
Miyamoto and Yamauchi Have a Very Different Vision for Game Design
2min
42.
Jump Man - A Video Game With a Gorilla
2min
43.
Game Review - Team Wildcard
2min
44.
Video Game Warehouse Space in Tequilla, New Jersey
2min
45.
Blusher - The Greatest Video Game Ever
3min
46.
Donkey Kong Predates Mario
2min
47.
Nintendo America and Sid Sheinberg vs. MCA Universal
2min
48.
MCA Universal vs Nintendo of America
2min
49.
Miyamoto's Donkey Kong Jr.
2min
50.
Shigeru Miyamoto's R&D Division
2min
51.
Miyamoto and the Nintendo Philosophy of What Makes for a Great Game Designer
2min
52.
Nintendo's R&D2 Team Has What It Takes
5min
53.
The PPU at the NES Is Actually Doing a Lot of Work
2min
54.
The NES Has a Graphic Capability, but It Doesn't Need the Most Expensive Hardware
1min
55.
The Famicom in Japan
2min
56.
Nintendo and the Famicom Take Off in Japan
3min
57.
Should We Pull the Trigger?
4min
58.
Atari's Famicom, Atari of America, Nintendo of America
2min
59.
The Famicom in Japan
2min
60.
The Legend of Zelda, Super Mario Bros.
2min
61.
Nintendo of America Versus the Japanese Parent Company
4min
62.
The Power of a Platform and a Network Effect in the Video Game Console Business
2min
63.
Nintendo of America - The Most Genius Inversion of All Time
2min
64.
Nintendo of America Is a Nintendo Signed Cryptographic Game
2min
65.
Nintendo of America Is a Dead Industry.
2min
66.
Nintendo of America and Nintendo Japan Launch in New York City Metro Market
3min
67.
Nintendo of America - The Next Innovation
2min
68.
Nintendo America
2min
69.
Nintendo Is Just a Float in the Video Game Market
2min
70.
Game Counseling Advice
2min
71.
Nintendo of America
2min
72.
How Nintendo Power Can Build a Brand Affinity
3min
73.
The Nintendo Power Strategy Reminds Me So Much of the NFL With NFL Films
2min
74.
The NES Famicom - Part Two
2min
75.
The Best Internet Private Equity Firm of All Time
2min
76.
Is Tiny a Great Place to Sell Your Business?
2min
77.
AOL. Is AOL a Game Distribution Company?
2min
78.
Id Software - The Story of the Atari 2600
2min
79.
What Carmack Did at Id Was So Incredible
2min
80.
What the Hell Is Side Scrolling Mario?
2min
81.
Scale Economy - The Number One Source of Power
2min
82.
Nintendo Is Killing Their Dominance
2min
83.
Nintendo's Scale Economy
2min
84.
Did Miyamoto Design Zelda?
2min
85.
Switching Costs
2min
86.
Brand Power Is a Cornered Resource, Not Branding
2min
87.
Super Mario Brothers - The Perfect Casual Gaming Character
2min
88.
Nintendo IP
3min
89.
The Name of the Game Is the Game
2min
90.
What Other Businesses Ever Had 95% Global Market Share?
2min
91.
Is Nintendo a Toy Market That Isn't Durable?
2min
92.
Gaming Becomes a $150 Billion Market
2min
93.
Nintendo
3min
94.
Carvouts?
2min
95.
Video Games vs Music
2min
96.
The Reboot of the Acquired LP Program
3min
You may think you know the Nintendo story: a plumber named Mario, a princess named Zelda… and didn’t they buy the Seattle Mariners at some point? We thought we knew it too. And then we started researching and were blown away.
The lovable Disney-like Nintendo that we know today is a 130 year-old a playing card company (i.e. gambling), forged in the shadowy world of the Yakuza and shaped by a four-generation cycle of bitter family betrayal. And its unlikely transformation into a global multi-billion dollar media monopoly was led by an iron-fisted patriarch who — amazingly — never played a video game in his life! Get ready for one of our favorite stories Acquired has ever told — we couldn’t make this one up if we tried!
ACQ2 Show:
Links:
- Our Atari episode with Nolan Bushnell
- Video of id Software’s legendary PC “port” of Super Mario Brothers 3
- Episode sources
Carve Outs:
- Everything Everywhere All At Once
- Michael Lewis on Tim Ferriss and on CSPAN
Sponsors:
Statsig: https://bit.ly/acquiredstatsig24
Vanta: https://bit.ly/acquiredvanta
Crusoe: https://bit.ly/acquiredcrusoe
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highlights
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