Too much Wii in this Blue Ocean?

I am certainly not alone in relishing my user experience with a Nintendo Wii. Nor am I the first person to think about the Wii strategy as clearly Blue Ocean.

For those of you who haven’t encountered this concept, Blue Ocean Strategy is the idea, as espoused by two INSEAD academics and consultants, that firms will reap much greater rewards from seeking out a competitive space where they encounter few or no competitors. Doing so requires firms to identify non-customers who are ignored by current competitors in the red-ocean market space (it is red because of the “blood in the water”), and then offering them new and unexpected sources of value.

The Wii strategy fits this definition on several fronts. It targeted non-gamers, such as females, families and all of us folks who sneered at hardcore gamers. The Nintendo president has described the firm as “swimming in a clear sea teeming with women, pensioners and repentant couch potatoes” . It broke the nexus between console innovation and chip technology. It made gaming more of a collective, social, family endeavour. It did not pursue the console as a loss leader (i.e. didn’t adopt the razor model – ‘charge a little for the handles but a lot for the blades’). The firm reportedly makes a nice profit on the consoles (unlike Sony and Microsoft who drop >$100 on each pricey console they sell but hope to make it back on games sales to their frequently purchasing customers).

This analysis highlights the extent to which Nintendo’s new value proposition is built around fun (and the elimination of costly elements that the new customer segments weren’t after anyway, such as the ability to play movies or experience hyper-real graphics). There is further discussion of the Blue Ocean arguments here.

Most of these discussions have ignored the other key (non-Blue Ocean) strategic advantage that Nintendo have – that they control a greater proportion of their Value Chain than their rivals. Nintendo do much of their game development in-house, and thus reap greater returns from the decision of consumers to choose the Nintendo format over others. As Forbes has noted, the biggest sellers for the Wii are Nintendo’s own products, and not having to pay license fees (plus the simpler technology involved) has kept game prices down (and thus sales up).

Of course, this also means Nintendo bear the risk of any new game failing. For example, there is considerable doubt in the market about the Wii Music offering. The general criticism is that it doesn’t match up to our typical expectations of a game – it is too educational, with no clear winner/loser. But isn’t that what Blue Oceans are all about?

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