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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Yves Guillemot, president and CEO of French game publisher Ubisoft, says Nintendo has become the top console maker to work with. Two of Ubisoft's games, Rayman: Raving Rabbids and Red Steel (in which you use the Wiimote like a sword), have sold nearly a million units each. "We looked at the capabilities of the Wii early on and saw that it was solving the most important element in the game industry—accessibility," Guillemot says.

Both the Wii and the DS, Guillemot adds, have Ubisoft developers thinking creatively about what constitutes a game. Later this year Ubisoft will unveil "My Life Coach" and "My Word Coach," titles developed in collaboration with a behaviorist and a linguist, respectively. "Nintendo has been very open with us," says Guillemot. "They're willing to do things that are a bit crazy. They see what we want to do and help us to make it as good as possible."

It took a while, but the industry's largest publisher, EA, has also come around to the Wii. At EA headquarters in Silicon Valley, developers glow at how the Wiimote opens a new aspect of games like "The Godfather" and "Tiger Woods". The company developed a new Wii-exclusive game, "MySims," due out in the fall; it is working with Steven Spielberg on a Wii title; and its latest FIFA soccer game will use Mii characters. "Nintendo is a pioneer," says John Schappert, COO of EA Studios. "They're zigging when others are zagging. It's another growth curve for the industry."

"We are successfully moving up the blue ocean," Iwata says. "But once the blue ocean has become big enough for so many people to notice, it is going to change its color to red."

The Blue-Ocean Strategy

Talk about lost in translation. Turns out there's a name for the line of attack Iwata has been taking: the blue-ocean strategy. Two years ago business professors W. Chan Kim and Renée Mauborgne published a book by that title. It theorizes that the most innovative companies have one thing in common—they separate themselves from a throng of bloody competition (in the red ocean) and set out to create new markets (in the blue ocean).

Starbucks is an example. There's always been coffee; Howard Schultz gave us the coffee experience. Or Apple, which gave us the iPod and iTunes—and created a new form of entertainment.

Iwata set his course before the book was published, but now that he's read it, he feels validated. "Even before someone invented the term blue-ocean strategy, we were exercising it," he says. "It is an unwritten company credo, something that runs deep in our DNA."

The Wii's success has done little to convince Microsoft executives they're on the wrong course. The company is positioning itself for a world where people play multiplayer games, download movies and control their TVs through one box. "Nintendo has created a unique and innovative experience," says Peter Moore, who runs Microsoft's Xbox business. "I love the experience, the price point, and Nintendo content." But Microsoft, Moore adds, "provides experiences that Nintendo cannot provide."

Of course Microsoft has little more to lose than money, and there's plenty of that to go around. Sony is another matter. Gaming has been the company's profit center for years. Suddenly, when everyone thought the PS3 would solidify Sony's dominance, along came the Wii. With an unheard-of price and few quality games to choose from, the PS3 has produced disappointing sales; the father of the PlayStation, Ken Kutaragi was recently forced to resign his post as chairman of Sony Computer Entertainment.

But while he acknowledges a slow start, Jack Tretton, the president and CEO of Sony Computer Entertainment America, thinks it's too early to start talking winners. "You have to give Nintendo credit for what they've accomplished," says Tretton, who's quick to point out that Sony has come out with some innovative controllers too. "But if you look at the industry, any industry, it doesn't typically go backwards technologically. The controller is innovative, but the Wii is basically a repurposed GameCube. If you've built your console on an innovative controller, you have to ask yourself, Is that long term?"

Iwata knows the Wiimote alone won't sustain Nintendo forever. But Tretton's question nicely encapsulates two distinct approaches toward innovation. Despite the fact that the PS2, with its seven-year-old innards, is still the top-selling game console, Sony views the world through the eyes of an engineer, seeing an impressive proprietary technology (Betamax, Memory Stick, Blu-ray) and foisting it on the market.

From that point of view, less technology is always a step backward. Nintendo takes its cues from the outside world—Miyamoto's garden, for example, which was the inspiration for the Nintendo game Pikmin. Or from the behavior of everyday people, like the way we leave our TV remotes on the couch. In Miyamoto's eyes technology is just a tool, and less of it is often more. "What I want to do," he says, "is to make it so people can actually feel something unprecedented."

So what's next for this company, so full of surprises? The Wii gives Nintendo a few options. It could stick with the current Wii for a few years until today's top-end technology falls to Kmart prices. At that point it could introduce a Wii 2.0 with technology similar to today's PS3, but on the cheap. It could cut $50 off the sticker to compete with the price cuts that are undoubtedly coming from Sony and Microsoft.

But that's red-ocean thinking. Iwata wants to keep innovating, to do for gaming what Starbucks has done for coffee or Apple has done for music. "The relationship with the Mac or PC to iTunes and the iPod," he says, "that kind of combination may be possible between DS and Wii."

Until Nintendo gets more Wiis on retail shelves, all that is theoretical. Iwata says no single bottleneck has caused the shortage, and that has made the problem harder to solve. Because it was targeting a market that didn't exist, the company had no idea how popular the machine would be. And nobody could have known the Wii would still be selling so well as summer approaches.

That kind of thing just doesn't happen in the Christmas-centric world of gaming. "We cannot simply make 1.5 times as much or two times as much," he says. "When you're making one million a month already, getting to 1.5 million or two million is not very easy."

No, not easy. But necessary. So hurry up, Nintendo. My grandma is waiting.

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