Industry structure of the video game industry is divided into the following stages: development, publishing, manufacturing, distributing, and retail. The development stage is the most important part of the industry as it includes the idea and programming. The major risks are the volatile costs of game creation and unpredictable life cycle of the game. It often requires acquiring side developers. Publishing includes marketing and manufacturing. The major risk of the stage is duplication. Distribution means storage and delivery of the final products for sales, or retail.
What has been Nintendo’s strategy? How did Nintendo appropriate value from the industry?
In the competitive market, Nintendo came up with the idea of creating a new video game system with cheaper price and better characteristics. With the increased interest towards the new system, the company licensed 50 other companies (by 1988) and granted them right to produce cartridges. It also had about 30 subcontractors that made details for Nintendo systems. Since then, Nintendo has been having either internal game developers or side ones.
In 1988, Nintendo developed the Family Computer Communications Network System that connected the Famicom with terminals and a central computer and provided access to various online services.
In 1989, the company developed Game Boy and targeted the new product not only to pre-teenagers but also to children of the older age and adults.
Why did Nintendo succeed where Atari failed?
While in order to succeed Bushnell decided to sell Atari to a cash-rich company, Yamauchi decided to monopolize the market. Under the competitive climate, Nintendo launched Famicom, a cheaper video game system with higher quality of graphics. As it had been expected, Famicom succeeded and significantly undercut the market competition. However, the security chip in Famicom accepted only Nintendo-approved cartridges produced by Nintendo or its licensed partners. That allowed Yamauchi to take control over the video games market.
What are key risks for Nintendo going forward? Consider explicitly the issue of new generations of base stations.
Nowadays, the major Nintendo competitors are Microsoft and Sony. With the new and more powerful base stations, Xbox and PlayStation improve their games and always create the new ones, while Nintendo keeps the old traditions; graphics and productivity of Nintendo games improves slowly, and the games remain the same. The more powerful gameplay and new advanced games attract more potential consumers while Nintendo is mostly oriented to Nintendo lovers.