Satoru Iwata, Nintendo’s president, set one of the targets for the company’s next console with a small pile of DVD cases. “I actually stacked up a few DVD cases and said, ‘I’d like to make it about this size!’” he recalled later. The engineer in charge of the console’s structure remembered being “more stumped than shocked.”
It was an odd instruction in an industry that measured progress in power. Shiota, who developed the new console’s chips with Nintendo’s partners, described the usual contest as “How much faster is the CPU, how much more memory is there, and how many more polygons can be displayed?”
Nintendo had been losing that contest. Its previous console, the GameCube, sold 21.74 million units. Sony counts more than 160 million PlayStation 2s.
About a year into development, Takeda, one of the Nintendo engineers behind the console, started to doubt the roadmap the industry followed. After talking with Nintendo’s development partners, he came away convinced that “there is no end to the desire of those who just want more. Give them one, they ask for two.”
So Nintendo stopped chasing that curve and turned to a different group: people who didn’t play video games at all.
Afraid of the controller
Iwata put the question to a hall of game developers in March 2006: “why is it that anyone feels comfortable picking up a remote control for a TV, but many people are afraid to even touch the controller for a video game system?” Years earlier, he said, when he began talking about casual players and non-gamers, “few people listened.”
Instead of fighting rivals for the same buyers, look for the people the industry left out.
W. Chan Kim and Renée Mauborgne named this move in a Harvard Business Review article in October 2004, and in their book Blue Ocean Strategy a year later. In their terms, red oceans are the industries that exist today. The boundaries are known, and companies try to outperform rivals to grab a greater share of the existing market. Blue oceans are market space that doesn’t exist yet, “unexplored and untainted by competition.”
The picture behind the names is a feeding frenzy. The more sharks go after the same fish, the redder the water, and the less there is for each. Kim and Mauborgne’s advice is to look past the fish everyone is counting. One of their tools sorts noncustomers into tiers. The second tier is people who have seen what an industry offers and decided against it. Iwata’s people, afraid to touch the controller, fit that description.
The other half of the idea is cost. In a red ocean, as Kim and Mauborgne describe it, a company makes the value-cost trade-off: it chooses to be different or to be cheap. A blue ocean move tries to break that trade-off. Nintendo’s engineers used cutting-edge chips the other way round, not for raw performance but to cut size and power, so the console could be left on 24 hours a day. The money went into a one-handed motion controller in every box. “Some people put their money on the screen,” Iwata told the developers, “but we decided to spend ours on the game experience.”
By Nintendo’s count, the Wii sold 101.63 million consoles, nearly five times as many as the GameCube.
Four studios and a fee war
Imagine you teach piano in a town with three other studios. All four chase the same families with children between six and twelve, and the fight is over fees and exam results. Last year you lowered your fee twice. So did everyone else.
None of the four studios chases the adults who quit as children. When you ask a few of them why they never went back, their answers sound a lot like Iwata’s controller. They don’t want to be the 45-year-old in a waiting room full of eight-year-olds, and they don’t want to sit an exam or play at a recital.
So for them you drop the exams and the recital. You cut lessons to 30 minutes on weekday evenings and add something no studio in town offers: a class where four beginners learn the same song together. Nine people sign up in the first month, and none of them came from a rival’s waiting list.
For a while, those evenings are yours alone.
Some red water
Three researchers, Andrew Burke, André van Stel and Roy Thurik, saw a gap in the evidence. In a 2009 working paper they wrote that the theory’s empirical claims rested on “firm level case studies of successful firms rather than industry wide statistical analysis of all firms.” A list of winners can’t show how many others tried the same move and found nobody there.
So they ran the numbers on Dutch retailing from 1982 to 2000. Innovating into new market space did look like a viable strategy there. But it had not “made the competition irrelevant,” they wrote. In their words, blue oceans “are rarely purely blue and there is always some red water.”
Nintendo’s ocean had red water too. Wii sales peaked in the year to March 2009, at 25.95 million consoles. In June 2010, Sony announced its own motion controller for the PlayStation 3, PlayStation Move, to go on sale that September. In the year to March 2011, Nintendo sold 15.08 million Wiis.
Nintendo’s next console, the Wii U, went on sale in November 2012. By Nintendo’s count, it has sold 13.56 million.