Why did Nintendo step down from the hardware performance race?
Nintendo’s new console, the Nintendo Switch 2, is attracting a lot of attention. At the time of writing, it has not been released yet, but the number of applications for the lottery sale indicates high expectations.
From the perspective of competitive strategy theory in management science, Nintendo’s strategy is very interesting. Competitive strategy is a framework that considers how companies can establish a competitive edge in the market. There are two basic directions: a low-cost approach (cost leadership strategy) and a high-value-added approach (differentiation strategy).
Nintendo has long been competing in the home console market with competitors such as Sony (PlayStation) and Microsoft (Xbox). Whereas Sony and Microsoft consoles have emphasized immersive gaming experiences, in which you can focus on playing by yourself, Nintendo’s consoles feature experiences that everyone can enjoy together at relatively low prices.
This difference can also be seen in the details such as the design and operability of the consoles and their controllers. Nintendo’s strategy is to differentiate itself in terms of both price and experience value, which can be described as a best-of-both-worlds approach. What is particularly noteworthy is that the dimension of this differentiation is different from what it used to be.
The history of home consoles is also the evolution of competitive strategies among companies. Nintendo released the Nintendo Entertainment System (NES) in 1983 and its successor, the Super Nintendo Entertainment System (SNES), in 1990, which became smash hits. When Sony entered the market with the original PlayStation in 1994, Nintendo responded with the NINTENDO 64 in 1996.
Since then, Sony has continued to evolve with the PlayStation 2 (2000), 3 (2006), 4 (2013), and 5 (2020), and Microsoft has been releasing new models regularly, starting with the Xbox (2001). Nintendo has responded by introducing new products, namely the GameCube (2001), the Wii (2006), the Wii U (2012), and the Nintendo Switch (2017).
Early consoles had limited image-processing capabilities, so the main competitive factor was improved processing performance of chips such as the CPU and GPU. Every time a next-generation console was released, more realistic images and smoother motion were the criteria for measuring the value of the console. Indeed, the PS2, GameCube, Xbox, and other products in the early 2000s competed to improve performance in terms of metrics such as CPU clock frequency.
But with the next generation, while Sony’s PS3 and Microsoft’s Xbox360 were equipped with powerful CPUs, the performance of Nintendo’s Wii remained similar to that of its predecessor. In other words, Nintendo deliberately distanced itself from the industry norm that next-generation consoles must be high performance.
Wii aims for fun that is different from the existing value dimension
Sony and Microsoft have been trying to beat others by improving the clock frequency of their CPUs and their processing performance to enable higher definition and immersive gaming. This is competition based on the same factors as those in the early industrial period, and can be described as differentiation based solely on improved product performance.
In contrast, Nintendo has chosen to differentiate itself on another value dimension since the Wii. The Wii, for example, incorporated accelerometers into game operations to provide physical operability through a controller called the Wii Remote. The operation of the Wii was intuitive, and anyone of any age or gaming experience could easily enjoy playing tennis or bowling by simply swinging the Wii Remote.
In other words, by transforming the experience of operating with your fingertips into one that uses your arm or whole body, the company offered new value in the form of a console that can be enjoyed by the whole family, rather than limiting its target to existing core gamers.
This concept is also reflected in the appearance and specifications of the Wii. Its white, shiny, compact body is designed to blend naturally into your living room and is designed with low power consumption so that it can be left powered on with no impact. The Wii was meant to be a console fit for the heart of the home: the living room.
This design philosophy of playing together was carried over to the Nintendo Switch, and a new form of hybrid between stationary and portable consoles was born under the concept of “play anytime, anywhere, with anyone.”
In addition to playing on the big screen in your home like a traditional stationary console, you can carry the Switch itself with you, share a controller called a Joy-Con to have two players play on the spot, bring up to eight consoles to communicate locally, and connect online with players from around the world.
With this ability to change its shape to suit your playstyle and location, the Switch can be played with family and friends in a variety of places and situations, setting it apart from traditional stationary consoles.
Nintendo has deliberately distanced itself from the performance-oriented competition that others pursue, opting for a different path. This is a case where a new market has been created through conversion in the value dimension, rather than differentiation based solely on performance improvement.
The value dimension here refers to the evaluation axis that is particularly important among the various values of products. Traditional consoles have emphasized functional value, such as realistic images and processing speed.
Nintendo, on the other hand, took an approach that changed the very value dimension of the product. It redesigned the operability and design to bring a new experience to the way games are played, and proposed a set of values other than functional values. In other words, it is like jumping out of an existing playing field and starting a competition in a different place.
Leaders and product views necessary for value dimension jumps
One of the reasons Nintendo was able to make this jump in value dimension is that it did not possess the fundamental technology superior to others, which Sony and Microsoft had. Because Nintendo was at a disadvantage in terms of technological development capabilities in electronics and software, it needed to compete in a different way.
A well-known idea to bridge this gap in technological development capabilities is “lateral thinking with withered technology.” This development philosophy of former Nintendo engineer Gunpei Yokoi is to create new value by combining technologies already in use in other fields.
This idea is also in line with what economist Joseph Schumpeter called “new combination.” In other words, rather than creating entirely new technologies from scratch, he focuses on combining existing technologies and ideas to provide new uses and value.
So what does it take to leave the existing dimension and jump to a new value dimension, as Nintendo did? My research has revealed two main factors.
The first is the presence of a strong visionary leader. Product development in an existing value dimension can progress to some extent without strong leadership because the goal is clear and the development team can naturally pursue the same direction. However, when you are going to shift to a new value dimension, it is often unclear what you are aiming for or what dimension you are moving to. In situations like this, you need a visionary leader who determines where to go and brings the team together. For Nintendo, former president Satoru Iwata was exactly that kind of person.
The second is to have a clear corporate product view. In the case of Nintendo, the value of enjoying games with everyone that has been handed down through its history as a toy manufacturer is firmly rooted. Because this product view is shared throughout the company, development teams can jump to a new value dimension without hesitation.
Jumping to a new value dimension itself is theoretically possible for any company. But I think there are very few companies that have actually achieved that. I think this is because the company’s product view, that is, what the products aim for, has not penetrated into the company.
What I want to emphasize here is that competitive strategy is not about choosing something but about discarding something. In order to be accepted by many customers, companies tend to aim for safe and average products. However, the resulting product will end up being similar to that of others, making differentiation difficult.
To compete in a new value dimension, you have to intentionally discard something. The Wii, for example, ditched the boost in processing performance in favor of other attractive features, namely intuitive operability and shared family experiences. In other words, the key to a competitive strategy is to consciously abandon existing values and sharpen unique characteristics.
In this way, companies’ competitive strategies are interesting because they cannot be measured simply by their capital and technological capabilities. Sometimes, small companies beat large ones. This dynamism, in which small companies challenge large ones with their ingenuity, is what makes competitive strategy research interesting.
Nintendo is not a huge electronics or IT company like Sony or Microsoft. Originally, it was a toy manufacturer, and it might have been inferior in terms of company size and technological development capabilities alone. Still, with its unique ideas and strategies, it opens up markets and sometimes even leads the industry.
Nintendo’s competitive strategy can give us a clue as to how companies can create new value.
* The information contained herein is current as of March 2025.
* The contents of articles on Meiji.net are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.
Information noted in the articles and videos, such as positions and affiliations, are current at the time of production.