Wii Will Rock You

Fortune's Jeffrey M. O'Brien explains how Nintendo's new game machine won over the world—and beat the pants off Sony and Microsoft.

By Jeffrey M. O'Brien

June 22, 2007

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"We decided that Nintendo was going to take another route—game expansion," says Iwata, seated on the edge of a leather chair, leaning over green tea in a three-piece suit, a strip of gray emerging along the part in his thick hair. He has an easy command of English but speaks through an interpreter. "We are not competing against Sony or Microsoft. We are battling the indifference of people who have no interest in videogames."

The first test of the strategy came in 2004 with the Nintendo DS. Handhelds weren't a new concept. Nintendo had sold tens of millions of Game Boys. But Sony's forthcoming PSP was being touted as a multimedia machine rich in technology and with an ability to play movies. Iwata went cheaper, smaller (the size of the device), and broader (the intended market). The DS has side-by-side screens, one of which is a touchscreen; Wi-Fi; and voice recognition—all to make it approachable and communal.

To put those features to use, Iwata conceived what would become one of the bestselling games for the DS, "Brain Age." Based on the brain-training regimen developed by a Japanese neuroscientist, "Brain Age" tests and improves mental acuity. With sales of more than 12 million copies, the title has made the DS a hit in such unlikely places as nursing homes. Iwata also oversaw development of a talking cookbook "game." And of course Miyamoto kicked in, creating the pet-care game "Nintendogs," which has moved more than 14 million copies. As of this spring the company has sold more than 40 million DS devices, compared with 25 million PSPs. So when it came time to launch the Wii, Nintendo already had a model to follow.

Breaking the Mold

The typical life cycle of a game console goes something like this: Manufacturer produces or commissions the most sophisticated parts it can come up with and hopes to milk them for half a decade. Both the PS3 and Xbox 360, for example, have processors that are far more powerful than you'll find in most PCs. Each uses high-end graphics chips that support high-definition games; Sony even includes a Blu-ray DVD drive.

The boxes are expensive at first. Hard-core game freaks pay dearly to have a console early, but sales really jump in years two, three and four, as Moore's law and economies of scale drive prices down and third-party developers release must-have games. By year five the buzz has begun about the next generation, and the onetime latest, greatest machine can be found at a local garage sale for $50. Rinse. Wash. Repeat.

The Wii busted that mold. First, Nintendo used off-the-shelf parts from numerous suppliers. Sony co-developed the PS3's screaming-fast 3.2-gigahertz "cell" chip and does the manufacturing in its own facilities. Nintendo bought its 729-megahertz chip at Kmart. (Not really. But it might as well have.) Its graphics are marginally better than the PS2 and the original Xbox, but they pale next to the PS3 and Xbox 360. Taking this route enabled the company to introduce the Wii at $250 in the U.S. (vs. $599 for the PS3 and as much as $399 for the 360) and still turn a profit on every unit. And while a $250 sticker makes the Wii more of an impulse buy than even an iPod, it's not the pricetag that makes it fly off shelves.

As with DS, the Wii comes with Wi-Fi, which gives customers access to the Internet, and features an incredibly addictive Mii channel. Players craft likenesses of themselves (or anyone else; the little cartoons you see throughout this article are Miis), which then appear in boxing, tennis, golf and other games.

The only thing more fun than bowling in your living room with a bunch of friends is having their digital counterparts cheer you on from the alley inside your TV. The experience makes you forget about graphics altogether. You don't mind that your Mii is missing arms and legs.

And of course the Wii has that innovative interface, the Wii Remote. The Wiimote, as it has come to be known, features a speaker, a rumble pack that makes the device shake, and even a mystery feature or two that have yet to be exploited, like a microphone jack. (Wii Karaoke perhaps?)

But the Wiimote's magic really comes down to a $2.50 chip developed by a company in Cambridge, Mass., called Analog Devices Inc., or ADI. Known as a three-axis accelerometer, the chip precisely measures movement in three dimensions. At four square millimeters, several accelerometers would fit on your thumbnail.

Prying open a Wiimote, ADI applications engineer Harvey Weinberg explains how the innards work. "This is actually a pretty cool piece of engineering," he says. "There's a Bluetooth link in here, a little bitty speaker, and an infrared camera. Of course the most important part is the accelerometer." The camera communicates with the light bar, which sits above or below the TV set. This is important because of a player's tendency to swing the remote wildly while, say, trying to hit a baseball 450 feet. Each time the camera faces the TV, the machine reestablishes a player's whereabouts.

"The Nintendo guys were going to get large errors if they didn't figure out how to get absolute position," Weinberg says. "The camera resets the positional error. But they couldn't have gotten it to work with IR alone because most of the time you're not facing the TV. They couldn't have gotten it to work really good unless it was wireless. And they've aggressively chosen components that don't use a lot of power. The whole thing is synergistic."

Nintendo designed dozens of prototypes before settling on the Wiimote. Miyamoto says early versions looked more like a control pad. Some were whimsical, some complicated. Designers arrived at the current version by coming back to Iwata's decree to battle indifference, not the competition.

Miyamoto realized it wasn't a fear of gadgets that kept the average consumer from playing games. "TV remotes are always sitting out on a coffee table or on the sofa, but videogame controllers—people don't want them lying around," he says. "In that sense we thought we were losing to the TV remote. So we thought, What kind of controller can we create that won't make people afraid to touch it?"

A Gaming Pioneer

Under Miyamoto's creative direction Nintendo has never had a problem coming up with great games. Pokémon, Super Mario, The Legend of Zelda—Nintendo titles have dominated the bestseller list for each Nintendo console. But that's not necessarily a good thing for the company. Third-party games increase consumer interest in the hardware, which sells more software.

What's more, the console manufacturer gets a licensing fee for every third-party game sold, and it bears no development costs. "It really is pure profit," says Reggie Fils-Aime, the president and COO of Nintendo of America. "Third-party games can really determine who wins."

Fils-Aime, an intense, 46-year-old Haitian-American, introduced the Wii at a trade show in 2004 by announcing, "My name is Reggie. I'm about kickin' ass, I'm about takin' names and we're about makin' games." That opening salvo lit a fire under the gaming media and Nintendo fanboys, and now Fils-Aime is trying to do the same in the game-development community.

He's got a good pitch: Because the Wii isn't high-def, a game can cost as little as $5 million to develop, compared with up to $20 million for the PS3. That message, and the fact that the Wii is clobbering the PS3 in the marketplace, seem to be getting across. While Nintendo's own titles still top the Wii charts, third-party titles are selling well.

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