MT5007 - The Wii Case Study

THE
CASE STUDY
Team Members:
Chan Soi Lam Caroline (HT073239H)
Janarthanan Saravanakumar (HT073018L)
Lim Ching Wu Leslie (HT063039Y)
Setho Siu Yuen Clement (HT073022R)
Tan Hock Heng Daniel (HT073000U)
Tuanku M (HT073069X)
CONTENTS
1. INTRODUCTION ......................................................................................................................................2
2. EVOLUTION OF THE GAMING CONSOLE ..................................................................................2
2.1 HISTORY OF VIDEO GAME CONSOLE INDUSTRY .................................................................................2
2.2 HISTORY OF NINTENDO, INC.................................................................................................................3
2.3 NINTENDO AS A VIDEO GAME CONSOLE COMPANY...........................................................................3
2.4 NINTENDO’S VIDEO GAME CONSOLES .................................................................................................3
3. NINTENDO’S STRATEGY ....................................................................................................................4
3.1 SUSTAINING INNOVATION .....................................................................................................................4
3.2 DISCONTINUOUS INNOVATION ..............................................................................................................4
3.3 MARKET STRATEGY ..............................................................................................................................4
3.4 TECHNOLOGY STRATEGY .....................................................................................................................5
3.5 BUSINESS STRATEGY ..............................................................................................................................5
4. EXAMINING THE TECHNOLOGICAL ASPECT OF NINTENDO WII’S PATENTS...6
4.1 INTERNATIONAL PATENT CLASSIFICATION .........................................................................................7
4.2 UNITED STATES PATENT CLASSIFICATION ..........................................................................................7
4.3 CLASSIFICATION SELECTION USING IPC FOR WII REMOTE AND WIICONNECT24.........................8
4.4 CLASSIFICATION SELECTION USING UPC FOR WII REMOTE AND WIICONNECT24 .......................9
5. OVERCOMING THE COMPETITION ............................................................................................10
5.1 WHAT IS NINTENDO WII? ...................................................................................................................10
5.2 THE DISRUPTIVE INNOVATION MODEL .............................................................................................11
5.3 THE WII REMOTE ................................................................................................................................12
5.4 STANDARDS ..........................................................................................................................................14
5.5 BRAND CULTURE .................................................................................................................................14
5.6 WIICONNECT24 ...................................................................................................................................15
6. NINTENDO WII’S VALUE ECOSYSTEM....................................................................................16
6.1 CURRENT VALUE CHAIN .....................................................................................................................16
6.2 CREATING NEW VALUE CHAINS.........................................................................................................17
7. THE WAY FORWARD ..........................................................................................................................19
7.1 TACKLING PIRACY...............................................................................................................................19
7.2 ESTABLISHING ITSELF IN FITNESS INDUSTRY WITH WII FIT ...........................................................20
7.3 DEVELOPING VIDEO GAMES FOR EDUCATION ..................................................................................21
7.4 INTEGRATING WII WITH LIFESTYLE PRODUCTS ...............................................................................21
8. FUTURE STRATEGIES ........................................................................................................................22
8.1 MII – THE DIGITAL AVATAR FOR WII’S MII CHANNEL ...................................................................22
8.2 GAMING ADVERTISING ........................................................................................................................22
8.3 WII FIT .................................................................................................................................................22
9. CONCLUSION..........................................................................................................................................23
Division of Engineering & Technology Management
MT5007 Management of Technological Innovation
EXECUTIVE SUMMARY
Nintendo Wii is one of the latest console systems to stir up great hype in the gaming industry since its
launch. Formerly known as the Nintendo Revolution, it has a great impact on the approach to gaming.
In early 1980s, Nintendo dominated the game console business with their cartridge-based console
gaming system. However during the mid 90s they lost their dominance to Sony PlayStation. On 19
November 2006, Nintendo launched its fifth home video game console: Nintendo Wii, the direct
successor of Nintendo GameCube, to compete with the Microsoft Xbox 360, Sony PlayStation 3, and
the rest of the seventh generation video gaming systems.
Nintendo Wii targets a broader demographic than its competitors. They had created an innovation that
incorporates both refreshing gaming experience and user-friendly interfaces to target the previously
untapped portion of the demographic. Gamers of all ages, including female players and the elderly,
are getting into the action of Nintendo Wii. However, Nintendo Wii still has room for improvements.
This paper investigates the history of Nintendo’s fall from grace and rise again, tracks the
technological progress of Nintendo’s various generations of gaming consoles, and analyses the
intellectual property strategy by understanding the needs for filing patents in various jurisdictions.
Prior to that, the paper also shows the hypothesis adapted to pin-point patents which are filed to
protect the Nintendo Wii Remote and WiiConnect24. This paper examines Nintendo’s creative
enhancement of a commonly used technology (the accelerometer) in other industries to support its
user centric design concept (a methodology which produced other successes such as the Apple iPod).
It also delineates that the general value chain of Wii which has made it different its previous
innovations, and highlights on the competition Nintendo Wii faces in the dawn of the new gaming
millennium. Finally, this paper examines the possible strategies which Nintendo can adopt to ensure
continuous market success and dominance.
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1. Introduction
Nintendo Company, Limited is a Japanese multinational corporation founded on September 23, 1889
1
in Kyoto, Japan by Fusajiro Yamauchi to produce handmade Hanafuda cards. In the mid-twentieth
century, the company tried entering into several small niche businesses, such as a love hotel and a taxi
company. 2 Over time, Nintendo became a video game company, growing into one of the most
powerful in the industry and Japan’s third most valuable listed company with a market value of more
3
than US$85 billion.
Since the inception of Nintendo Entertainment System in the early 1980s, Nintendo had become a
very well known video game console company with their cartridge-based console gaming system.
However, due to keen competition from other companies such as Sega, Sony, and Microsoft,
Nintendo soon lost its dominance (starting from the late 90s) to other game consoles which adopted
the CD format.
In an attempt to bounce back, Nintendo introduced a new game console called Nintendo Wii in 2006.
Wii is a radical gaming system using virtual reality that bewildered the gamers. Nintendo was
declared “the company to beat” in the games business in 2007. With Wii, Nintendo has broken into a
totally different industry instead of competing with the mainstream that nearly brought them down
close to extinction. Nintendo Wii targets a broader demographic than its competitors. It has created a
disruptive innovation that incorporates both refreshing gaming experience and user-friendly interfaces
to target the previously untapped portion of the demographic. Gamers of all ages, including the
female players and the elderly are getting into the action of Nintendo Wii. However, Nintendo Wii
still has much to improve on.
2. Evolution of the Gaming Console

2.1 History of Video Game Console Industry
A video game console is an interactive entertainment computer or electronic device that manipulates
the video signal of a display device (a television, monitor, etc.) to play a game. The term "video game
console" is used to distinguish a machine designed for consumers to buy and use solely for playing
video games from a personal computer or arcade machines, which are designed for businesses that
buy and then charge others to play. Since video game consoles were introduced in the 70s, it had
1
Nintendo Company History, Nintendo Inc., 2008.
2
The Lucky Birth, N-Sider.com, 2007.
3
K. Takenaka, Nintendo set $85 bln high score, thanks to Wii, Ds, Reuters, 2007.
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undergone many transformations that can be divided into seven generations (as seen in Appendix A)
based on the number of ‘’bits’’ the console can support.4
2.2 History of Nintendo, Inc.

Nintendo started as a small Japanese business by Fusajiro Yamauchi near the end of 1889 as Nintendo
Koppai. Based in Kyoto, Japan, the business produced and marketed a playing card game called
Hanafuda. In 1956, Nintendo’s president Hiroshi Yamauchi began to realize the limitation of playing
cards business because it was viewed as a mere tool of gambling. In order to overcome the limitation,
Nintendo struck a deal with Disney in 1959 which allowed them to put Disney characters on their
playing cards. This opens up new markets where both children and homemakers started purchasing
playing cards.5 Due to this success, Nintendo went public in 1962 and became a listed company in
Osaka Stock Exchange. Soon after, Nintendo started to venture in other areas including Taxi
Company, Food Company, etc. Most of them failed except for their toy making venture.
2.3 Nintendo As a Video Game Console Company

Nintendo struggled to survive in the Japanese toy industry; it was still small at this point, and
dominated by already well-established companies such as Bandai and Tomy. Due to the generally
short product life cycle of toys, the company had to constantly develop new products. This was the
beginning of a major new era for Nintendo. Nintendo then saw the potential in video games and tried
to join the industry. The first move was to get a license to distribute Magnavox Odyssey in Japan.
After experiencing reasonable success, Nintendo began developing its own video games, for home
and arcades.
2.4 Nintendo’s Video Game Consoles

The main focus of this report is Nintendo’s fifth console, Nintendo Wii. Prior to the Wii, Nintendo
has released four other consoles since 1983 with varying degree of market success. A brief
explanation of those consoles and how they fared in their respective generations can be found in
Appendix A.
4
A Brief History of the Home Video Game Console, The Game Console.
5
Nintendo Land, 2004.
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3. Nintendo’s Strategy
The following section focuses on the strategy adopted by Nintendo in its game console business.
Some of these strategies are demonstrated and elaborated in the later section on how Nintendo Wii
overcame its competition. It is important to distinguish the two different video game industries before
proceeding with the discussion on the strategies.
3.1 Sustaining Innovation

The mainstream video game industry believes that better technology leads to better games. It
anticipates the next-generation video games console to have better and flashier graphics. This industry
relies highly on sustaining innovation. Sony and Microsoft are the key advocates in this aspect. They
focus on pursuing faster processing speed and better graphics in their game consoles. Sony
PlayStation 3 and Microsoft Xbox 360 are examples of such video consoles.
3.2 Discontinuous Innovation

The alternative belief is to use existing technologies and focus on developing unique user interface.
This would lead to better gaming experience for a wider audience. The industry recognizes that games
should not be limited just to interactions using the game controller. This industry depends on
discontinuous disruptive innovation. Nintendo is one of the players in this industry.
"...There is the TV set, here is the controller, (held) in both hands. We should not hesitate to crash
through the system Nintendo itself created..." - Satoru Iwata, President of Nintendo
Nintendo aims to let people rethink about gaming, and make gaming part of their life. In order to
achieve that, Nintendo has to carry out bold and brand-new moves, to prevent loss in market share.
The following describes the strategies adopted by Nintendo in market, technology and business
aspects.
3.3 Market Strategy
1. Reaching Beyond Existing Gamers - Besides the existing supporters, Nintendo targets to
open a mass market of first-time game players, women, and older consumers, not typically
drawn to this form of interactive entertainment. For example, according to Nintendo’s
President, Satoru Iwata, Wii “has been designed to appeal even to people who are not
interested in games”.6
6
Brian Bremner, Will Wii Strategy Score?, Newsweek, 20 Sep 2006.
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2. New and Easy-to-use Controller - Mastering complex controllers, festooned with buttons,
triggers and joysticks have already stopped many novices or non-gamers to be interested in
games. Therefore, Nintendo designed consoles with a new, easy-to-use controller, totally
different from the conventional one. For instance, the Nintendo DS - touch screen, and
Nintendo Wii –wireless controllers, which can be wielded as a weapon, or for various sports
equipment during game play. This ease of use has given Nintendo a great advantage over
their rivals.
3. Shortening the Game Time - To many people, playing games involves investing enormous
amounts of time. With hectic lifestyles, consumers are not keen to try epic games which
usually take dozens of hours to complete. Thus, Nintendo designed simple games, such as
“Wii Sports”, that only require play time of a few minutes per game. The shortened game
time may appeal to non-gamers or casual gamers.
4. The Budget Console - Consumers want great entertainment experiences and products that are
value for money. Nintendo aims to provide both. Nintendo launched Wii as a budget
alternative (US$ 250)7 to Sony PS3 (US$ 500)8 and Microsoft Xbox (US$ 400)9 in the 7th
generation consoles.
3.4 Technology Strategy
1. Do it Differently - Nintendo’s competitors consider both processing power and beautiful

graphics as key elements to success, but Nintendo defers. It attracts new gamers with its
innovative but not quite cutting-edge console.
2. Moving Closer to Mixed Reality - Games with Nintendo Wii are no longer escapist
scenarios, but rely on real-life. For example, while playing “Wii Sports” (golf, bowling,
tennis, etc.), gamers used the new controller as they would in reality which allows them to
pick up instinctively.
3.5 Business strategy
Open Innovation - In order to obtain a continuous stream of innovations, Nintendo sources talents
from its users. Nintendo invites them to develop the video games for the Wii, and will sell them over
the WiiShop channel. It is called WiiWare program, and is expected to launch in early 200810. By
tapping into the creativity of the crowds, Nintendo can minimize risk, and improve profit margin with
WiiWare.
7
Nintendo Playing a different game, The Economist, 26 Oct 2006.
8
Console wars, The Economist, 22 Mar 2006.
9
Microsoft to cut US price of Xbox, BBC News, 7 Aug 2007.
10
P. D. Ridder, Nintendo embraces crowdsourcing, Open Innovators, 28 Jun 2007.
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From the strategies in the three aspects mentioned above, Nintendo has acquired its own particular
strategic positioning, by producing game consoles which can appeal to players in different
demographics, promoting good enough concept and providing a better sensation of virtual reality.
Meanwhile, Nintendo ensures its profit by providing less costly consoles, and sustains its continuous
effort in R&D.
4. Examining the Technological Aspect of

Nintendo Wii’s Patents
This section discusses the technological aspect of protecting the Nintendo Wii. There are altogether
more than 104411 patents either filed and or granted by Nintendo beginning from the mid eighties. It is
interesting to understand the Intellectual Property strategy adopted by Nintendo to protect the Wii.
Based on the findings, both Wii Remote and WiiConnect24 devices stand out from the rest of their
competitors. Thus, these are the patents likely filed to protect the Wii Remote and WiiConnect24.
This section also investigate on the markets that Nintendo fears the most which require protection,
and the rationale for not filing in other countries. It explains the process on arriving with the
hypothesis on patents likely filed to protect Nintendo Wii Remote and WiiConnect24. There are
numerous ways to determine the patents used for the Wii Remote and WiiConnect24. Both the
International Patent Classification and United States Patent Classification were used to make a sound
judgment on the patents that were filed for protecting Nintendo Wii Remote and WiiConnect24.
Figure 1: Breakdown of Patents Filed according to IPC11 .
11
Dephion.com.
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Figure 2: Breakdown of Patents Filed/Granted according to Countries11.
4.1 International Patent Classification
The International Patent Classification12 (IPC) is a hierarchical patent classification system created
under the Strasbourg Agreement (1971) and updated on a regular basis by a Committee of Experts,
consisting of representatives of the Contracting States of that Agreement with observers from other
organisations, such as the European Patent Office. The Strasbourg Agreement is one of a number of
treaties administered by the World Intellectual Property Organization (WIPO). The patent
publications from all the various contracting states are each assigned at least one classification term
indicating the subject that the invention relates. It may also be assigned further classification and
indexing terms to give further details of the contents.
Each classification term consists of a symbol such as A63F 9/24 (which represents "Games using
electronic circuits not otherwise provided for"). The first letter is the "section symbol" consisting of a
letter from A ("Human Necessities") to H ("Electricity").13 This is followed by a two digit number to
give a "class symbol" (A63 represents "Sports; Games; Amusements"). The final letter makes up the
"subclass" (A63F represents "Card, Board, or Roulette games; Indoor Games using Small Moving
Playing Bodies; Games not otherwise provided for "). The subclass is then followed by a 1 to 3 digit
"group" number, an oblique stroke and a number of at least two digits representing a "main group" or
"subgroup".
4.2 United States Patent Classification
The United States Patent Classification 14 is an official patent classification system used and
maintained by the United States Patent and Trademark Office (USPTO).
12
International Patent Classification, Wikipedia, 2008.
13
International Patent Classification, World Intellectual Property Organization, 2008.
14
Select US Classes by Number and Title, United States Patent and Trademark Office, 2008.
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There are over 400 classes in the U.S. Patent Classification System, each having a title descriptive of
its subject matter and each being identified by a class number. Each class is subdivided into a number
of subclasses. Each subclass bears a descriptive title and is identified by a subclass number. The
subclass number may be an integral number or may contain a decimal portion and/or alpha characters.
A complete identification of a subclass requires both the class and subclass number and any alpha or
decimal designations; e.g., 417/161.1A identifies Class 417, Subclass 161.1A.
The theory provides the necessary classification understanding for both IPC and UPC symbols. The
next step is to go into the IPC13 and UPC14 websites to narrow down the search selection. The
following are the processes taken to select patents that are related to the Nintendo Wii Remote and
WiConnect24.
4.3 Classification Selection Using IPC For Wii Remote and WiiConnect24
Through the use of IPC, the selections are narrowed to the following:
A Section A – Human Necessities
A63 Sports; Games; Amusement
A63F CARD, BOARD, OR ROULETTE GAMES; INDOOR GAMES USING
SMALL MOVING PLAYING BODIES; GAMES NOT OTHERWISE
PROVIDED FOR (data-processing equipment characterised by a specific
application for game playing G06F 17/00, G06F 19/00)
A63F 9/00 Games not otherwise provided for (aspects of games using an electronically
generated display having two or more dimensions showing representations
related to the game A63F 13/00)
A63F 9/02 Shooting or hurling games (throwing-implements for sports or recreational
use; throwing or projecting toys per se; targets, targets ranges, bullets
catchers
A63F 9/24 Games using electronic circuits not otherwise provided for
A63F 13/00 Aspects of games using an electronically generated display having two or
more dimensions, e.g. on a television screen, showing representations related
to the game (electric circuitry, see the relevant subclasses therefor)
A63F 13/02 Accessories (input or output arrangements for electrical digital computers
G06F 3/00)
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4.4 Classification Selection Using UPC For Wii Remote and WiiConnect24
Through the use of UPC, the selections are narrowed to the following:
273 or 463 Amusement devices: games (Note: 273 classes is eliminated because it is
directed to games)
463/002 In a game including a simulated projectile (e.g., bullet, missile, ball, puck,
etc.):
463/032 Three-dimensional characterization:
463/037 Hand manipulated (e.g., keyboard, mouse, touch panel, etc.):
US to IPC8 Concordance for Class 463 AMUSEMENT DEVICES: GAMES

Table 1: UPC to IPC concordance.
U.S. Subclass IPC8 Subclass IPC8 Group
1 - 47 A 63 F 9 / 24
1 - 47 A 63 F 13 / 00
48 A 63 F 9 / 00
49 - 57 A 63 B 67 / 00
49 - 57 A 63 F 9 / 02
58 - 69 A 63 F 9 / 14
Regarding US-to-IPC Concordances [Concordances between US Patent Classification and the

International Patent Classification Eighth Edition]: The USPC does not precisely concord to the IPC.
It provides an estimate on how to refine search.
Table 2: Patents Filed/Granted according to IPC/UPC for Wii Remote & WiiConnect24.
No of Patents Description
UPC
Filed/Granted
463/002 3 Simulated Projectile Games Devices
463/032 33 Three Dimensional Devices
463/037 31 Hand Manipulated Game Devices
No of Patents
IPC
Filed/Granted
A63F-009/02 8 Shooting or Hurling Game Devices
Miscelleanous Games Using
A63F-009/024 50
Electronics Circuits
A63F-13/02 12 Assessories for TV Games
No of Patents
UPC & IPC
Filed/Granted
Same Class 21 Others
Table 2 explains the number of patents filed/granted to protect the Nintendo Wii Remote and
WiiConnect24 by using the UPC and IPC classification to do a streamlined search. Based on research,
Nintendo patent strategy has been filing patents in the European Union, Japan, USA and China. They
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have particular interest in these countries because there is a need to prevent other strong competitors
(such as Microsoft, Sega, etc.) from entering into their niche Wii Remote and WiiConnect24 market.
As patent filing is very costly, they need to strategize and position themselves properly to ensure that
they protect their patents effectively while making sure they maximize their finances. The patents
protecting Nintendo Wii Remote and WiiConnect24 would likely comprise a total of 97 patents.
Appendix B shows the complete list of the 97 patents.
5. Overcoming the Competition
In the seventh generation of video game console, only three major players are left in the industry -
Sony, Microsoft, and Nintendo. SEGA has stopped developing video game consoles after their failures
in previous generation console battles. Microsoft’s Xbox 360 kick-started the console war of the
seventh generation in 2005, a year ahead of its two competitors. This move gave them an
advantageous head-start. Sony’s PlayStation 3 followed in 2006 and Nintendo’s Wii was released a
week later.
In 2007, Nintendo Wii finished second in terms of worldwide video console game hardware sales,
behind Nintendo DS, with 6.29 million units. 15 It outsold the highest performance machine,
PlayStation 3, at sixth position, by 3.69 million units.15 The nearest competitor was Microsoft Xbox
360 in third position, at 4.62 million units sold.15 This section will examine the factors that helped
Nintendo Wii overcome its competition and led to its huge success despite being the lowest
performance machine among the three.
5.1 What is Nintendo Wii?

Wii was first launched in the United States on 19 November 2006. With a small form factor of 44mm
by 157mm by 215.4mm, it is Nintendo’s smallest home console. As revealed by hobbyists who
disassembled the Wii, the small form factor is possible due to the tight system design which optimizes
the space. Figure 3 shows a disassembled Wii.16
Figure 3: Disassembled Wii16.
15
December and 2007 Video Game Sales – Incredible, Seeking Alpha, 21 Feb 2008.
16
S. Fogie, Wii Exposed: Wiinternals, Wii-motes, and a Teardown Wiideo, 20 Nov 2006.
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It runs on an IBM PowerPC-based “Broadway” 729MHz CPU, which is less powerful as compared to
the sixth generation original Microsoft Xbox (Coppermine-based Mobile Celeron 733MHz CPU).
Table A-1 in Appendix A shows the comparison of the technical specifications of the seventh
generation game consoles.
Instead of competing in terms of performance, Wii defined a new set of rules, which Nintendo wants
to compete in. Reggie Fils-Aime, president of Nintendo America, articulated this, “Our competitors
are stuck in an old paradigm. They think that processing power and beautiful graphics are the path to
success. We disagree. Consumers want great entertainment experiences and value for money, and we
provide both.” 17
Thus, Nintendo only included the processing capabilities in the chip, which consumers would get the
most out of, and that helped it keep the console price at a relatively low US$249.99, compared to
what is expected to be almost twice that for PS 3. Examining Table A-1, Wii has a much more
inferior hardware component and it is of lower performance as compared to its competitors. This also
translates to lower manufacturing cost and more affordable gaming consoles for the consumers.
The features that distinguish Wii from its competitors are Wii Remote and WiiConnect24. Wii
Remote is the wireless controller, which can be used as a handheld pointing device and can detect
acceleration in three dimensions. WiiConnect24 enables it to receive messages and updates over the
Internet while in standby mode.
5.2 The Disruptive Innovation Model

By examining the innovation model of Wii, this paper reveals some of the factors and strategies that
enabled Wii to overcome its competitors. Clayton Christensen defined disruptive innovation as
innovation of lower cost and performance, which targets a new market segment and by successively
moving up-market through performance improvement, it displaces the market incumbent. 18 In
general, Wii can be described as a disruptive innovation. Wii targets a different market segment of the
non-traditional gamers (ie. female and older players). This is evident in the next few paragraphs
which illustrate the different strategies Nintendo adopted for Wii. As shown previously, the
performance and cost are lower. However, Wii has successfully beaten the incumbent to become
market leader by using existing technologies. In fact, Nintendo has mainly centered its innovation and
strategies on the console’s wireless primary controller, Wii Remote, to achieve the effects of a
disruptive innovation.
17
S. Hamm, Hot Chips and Cool Console, Businessweek, 17 Sep 2006.
18
C. Christensen, The Innovator’s Dilemma, HaperCollins, 2000.
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5.3 The Wii Remote

In line with the main design concepts of the main console, the Wii Remote uses the inexpensive
accelerometer and optical sensor technology to enable motion sensing capability. This allows the user
to interact and manipulate items on screen via movement and pointing.
Sensing of acceleration is along the three axes through the use of an ADXL330 accelerometer.19 The
PixArt optical sensor allows it to interact with the console’s Sensor Bar in determining where Wii
Remote is pointing. The advantage of such implementation is that usage will be consistent regardless
of the television’s type or size. In addition, the controller also provides basic audio and rumble
feedback functionality. The speaker on Wii Remote helps to create special sound effects when used
with the sound from the television. Game’s objectives can also be delivered to players via the
controller’s speakers. Memory chips on the controller let users save their configuration data.
The Wii Remote creates a totally different gameplay and user interactivity from the other video
console games. The design assumes a one-handed remote control-based design instead of the
traditional gamepad controllers. This is an easy and refreshing way of interacting with the game
which appealed to the female and older players Nintendo is targeting.
The modular design of the Wii Remote means that various attachments can be added to the Wii
through the hardware expansion port on the controller. This expansion port modifies the way users
operate the controller while keeping to the main principle of interaction - acceleration and motion
sensing. Examples of these expansions include the Wii Zapper (a gun shell peripheral) in Figure 4, the
Wii Wheel in Figure 5, and Wii Fit in Figure 6. The expansion port builds flexibility into the Wii
Remote so that different peripherals can be used depending on the type of game (such as RPG, first-
person-shooting, racing, etc.). As such modes of interaction exist in video arcades, users can easily
adapt to the use of these peripherals.
19
Wii Remote, Wikipedia, 2008.
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Figure 4: Wii Zapper.
Figure 5: Wii Wheel.
Figure 6: Wii Fit.
Other examples of expansion of the Wii Remotes include the Nunchuk that transform it into an analog
stick, and the Classic Controller which replicates the Nintendo GameCube controller. The Patent
Publication US20070052177 and US20080015017 in Appendix C show the other possible ways in
which the Wii Remote can be expanded.
Third parties aesthetic and ergonomic accessories have also been developed for the Wii Remote,
including silicon covers, and extensions shaped like tennis rackets, baseball bats, light sabers and golf
clubs as seen in Figure 7.
Figure 7: Wii Remote Accessories.
The Wii Remote embodies most of the innovation in Nintendo Wii which revolutionize the way
gamers interact with the video console game. This is also the main reason that attracts the non-gamers
to video console games.
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5.4 Standards
The motivation in the design of the Wii Controller is to standardize the interaction with the video
games to motion sensing and pointing. Regardless of the type of games and peripherals used, players
use the same method of interaction. The new market segment which Wii targets does not have
preconception of what user interaction should be like. Thus, they will be able to readily adapt and
accept this way of interaction and perceive it as the de facto standard. Subsequently, this will increase
the cost of switching to other video console games.
Another effect of such standardized user interaction is the establishment of a Nintendo Wii brand
culture. Drawing comparison to the Starbucks brand culture, instead of referring to the various sizes
of beverages as “small, medium, large”, Starbucks uses “tall, grande, venti”. Such words are
examples in which Starbucks consumers can identify. Similarly, the Wii user interaction is a feature
which Wii players identify to as the Wii’s culture. The next section elaborates more of the
development of brand culture.
5.5 Brand Culture

“A rose by any name would smell as sweet”. However, this phrase is the opposite of what Nintendo
tried to achieve when they chose the name for the seventh generation video game console. The
original name of the console was “Revolution” until 27 Apr 2006. The Nintendo console was actually
marketed outside Japan without its company name, as “Wii”. Nintendo's spelling of "Wii" with two
lower-case "i" characters is meant to resemble two people standing side by side, representing players
gathering together, as well as to represent the console's controllers. According to the official Wii
website,20 “Wii sounds like 'we', which emphasizes that the console is for everyone. Wii can easily be
remembered by people around the world, no matter what language they speak. No confusion. No need
to abbreviate. Just Wii.”
With a well-defined brand, Nintendo went on to develop their brand language. This is similar to
Apple which rolled out series of products that were branded with “i” (such as iPhone, iPod Nano, etc.)
since its success in iPod. Nintendo rolled out key products using the words “Wii” and created the
“Mii” which is the digital avatar that users can create and use on all their games as an identity. Once
again, this method of personalization and user profiling further developed the brand culture and
targeted the Wii’s new market. Female users pay more attention to details and generally enjoy
spending time in the personalization of their avatars. This strategy has been proven effective.
20
Nintendo annources new revolution name – Wii, Gamasutra, 27 Apr 2006.
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Nintendo's 2:1 male-to-female split (33% of women in Wii households are regular players), as
compared to overall industry sell-through at a 4:1 male-to-female split.21
5.6 WiiConnect24
With the majority of third-party games titles released for more than one platform, the network effects
of software following platform are substantially diminished. Thus, Nintendo needed to exploit
network effects in other areas. The WiiConnect24 is an example in which concepts of online
applications which has network effects, such as Instant Messaging (IM), is being applied in the Wii
console. It is a feature of the Wii console that enables some of the system's features to work while the
console is on stand-by. Other players will be able to leave messages for offline players. This form of
communication is similar to IM and players enjoy such interactivity and convenience. WiiConnect24
is also used to receive content such as Wii Message Board messages sent from other Wii consoles,
Miis, e-mails, updated channel, and game content, and notification of software updates. As
Nintendo’s CEO Satoru Iwata revealed, it will also serve as a way for Nintendo to communicate
directly to its customers.22 He said in an interview, “Let's say your Wii is connected to the Internet in
a mode that allows activation on a 24-hour basis. This would allow Nintendo to send monthly
promotional demos for the DS, during the night, to the Wii consoles in each household. Users would
wake up each morning, find the LED lamp on their Wii flashing, and know that Nintendo has sent
them something. They would then be able to download the promotional demo from their Wii systems
to their Nintendo DS's."
21
B. Pidgeon, E3 2007: Platform Evolution and Market Growth, IDC, 2007.
22
D. Jason, Iwata Comments On Wii Controller, Online Functionality, Gamasutra, 2 Jun 2006.
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6. Nintendo Wii’s Value Ecosystem
The value ecosystem of the game console industry is one of the most unique amongst the other
industries. As highlighted in lectures, it was one of the few industries whereby the manufacturers are
more successful than the owners of complementary assets. The game console manufacturer has
managed to extract value from the game developers and OEM hardware via licensing agreements.
This game console value ecosystem is shown in Figure 8 and will be discussed in detail.
Figure 8: Game Console Value Ecosystem.
6.1 Current Value Chain

The value ecosystem has become much more complicated since 1985 when NES was first introduced.
The ecosystem will be described in a chronologically serial manner.
Firstly, the game development value chain is described (red). The game developers create games for
the console makers (blue). The digital rights management (DRM) providers provide DRM to game
developers to protect their copyrights. For NES, the DRM provider is the console maker itself, as the
DRM is integrated into the hardware of the console. The game developers then send their games to
games publishers which amalgamates games from various developers. The game publishers then
select the games suitable for the market.
Secondly, the games marketing value chain is described (purple). The game publishers then send
these games over to distributors who would warehouse and distribute them to retailers which are
closer to the customers. The game publishers may also send the games over to marketing agencies
which may help to advertise the games to the customers.
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Thirdly, the OEM hardware value chain is in pale blue. The OEM hardware manufactures equipment
which relates to the console. Originally, the gun and the controller were the only equipment
manufactured for the NES. The OEM manufacturer has to give the console manufacturers licensing
fee for the technical information required.
Fourthly, the content provision value chain is in pink. The game developers might license some
content copyright from characters and music for the NES.
6.2 Creating New Value Chains

Up until 1985, the value ecosystem only consists of the 4 truncated value chain. And already both the
game development and OEM hardware value chain returns licensing revenues back to Nintendo to
make this a hyper-profitable value ecosystem for Nintendo. Nintendo has started to adopt a hybrid
strategy of integration and contractual channel strategy assuming the role of game developers (for
Mario Bros), content providers (tunes of Mario Bros and the characters), and even as marketing
agencies. In 1991, they launched a hugely popular subscription magazine called ‘Nintendo Power’
which features news and tips of Nintendo games. They refused to carry game ads in the magazine and
would only feature games by developers who would toe the Nintendo line.
Realizing that game quality is an issue and to curb power of its individual complementors, Nintendo
exercised hard power over their complementors23 by limiting the number of games a developer could
produce in a given year and made the game developers develop games exclusively for Nintendo. This
hard power strategy caused Nintendo dearly when Sega introduced Genesis, game developers rebelled
and set up shell companies to develop games for the new competitor. In 1991, Nintendo lost all
initiative in the game console industry when Sega released ‘Sonic the Hedgehog’.
Today, Nintendo has learnt to work with their complementary players and the value ecosystem has
grown significantly. Firstly, the OEM manufacturers (pale blue) have more equipment to manufacture
including steering wheels, musical instruments (guitars), storage devices (to save games into), sports
equipment (Wii Fit), headsets and cameras for communication. The Wii has yet to implement
headsets or cameras for communication through the internet.
Also expanded are the different contents that are licensed by the game developers. Real personalities
including sports super stars are licensed into the game, movies (like Lord of the Rings) and its
soundtrack also form the contents of games. But more radically, content providers are now able to
23
D. B. Yoffie, M. Kwak, With Friends Like These: The Art of Managing Complementors, Harvard Business
Review Vol. 84, No. 9 Sept 2006.
17 | P a g e
directly provide content to the console itself. Sony and Microsoft consoles can now play music CDs,
and DVDs directly and the DRM is proprietary to the individual publishers. Nintendo has Wii
Channels which provides IPTV content as well as Wii Shop which provides downloadable content for
a fee. This extension makes the content provision value chain (pink) a third revenue generator for the
console makers.
Another two new value chains are added to the game console value ecosystem. First is the brand
advertising value chain (yellow). Presently, brands are trying to advertise within the game itself. Thus,
while the customer is immersed in the gaming experience, the brand might be advertised in the virtual
world. This would help generate revenue for the game developers. In fact, game developers have been
known to license some of its fictitious brands in the game environment!
The other new value chain is the connectivity value chain (green). The internet service providers
provide the internet connectivity to the customer on which the console system rides upon. Skype has
offered its VOIP services via the Sony PlayStation 3 and this allows voice and video communication
with other customers. This would be a crucial strategy that Nintendo is not addressing completely as
this reinforces the network effects. Microsoft has opted for the integration channel strategy (opposed
to contractual with Skype) and implemented its own communication portal. Microsoft has also made
internet connected game play available with a subscription-based service, Windows Live!, its own
application service provider. It allows customers to link play across the internet. Sony PlayStation 3
provides free internet link play via its PlayStation Network. This is another important network effect
which Nintendo has neglected.
Microsoft has managed to channel yet another revenue stream via the connectivity value chain. On the
other hand, Sony is able and willing to suffer a lost in margins for each console sale. Nintendo
interestingly makes USD$15 for each console they sell, due to their reduced technical specifications.
However, Microsoft is best positioned to exploit the value ecosystem, drawing from 4 revenue
generating value chains as compared to the others with 3. Microsoft also fully utilizes its other value
chains to create network effects to draw the customers. As a gauge for the amount of licensing
revenue that a console maker earns, an analysis of one of Microsoft’s own console games “Gears of
War” indicates that the game development value chain itself would bring in 11.5% of the sales price
of the console game!
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24
Figure 9: Breakdown of Cost of a Console Game .
7. The Way Forward

The previous sections of this paper discussed the present situation of Nintendo and its success factors.
It is important to look for the crucial aspects of concern so as not to lose the current momentum.
Nintendo’s future may depend on the following factors:
1. Tackling Piracy.
2. Establishing Itself in Fitness Industry with Wii Fit.
3. Developing Video games for Education
4. Integrating Wii with Lifestyle Products.
7.1 Tackling Piracy

Emulation is the current prevalent form of piracy in the gaming industry. The continued growth of the
internet and the emergence of peer-to-peer (“P2P”) file sharing technology are the factors which
contributed to such form of piracy. This resulted in a loss of US$10.92 per customer to the gaming
industry. 25
24
Electronic Gaming in the Digital Home: Game Advertising, Parks Associates, Page 48, 2007.
,
25
J. Conley,E. Andros, P. Chinai, E. Lipkowitz, D. Perez, Use of a Game Over: Emulation and the Video
Game Industry, Northwestern Journal of Technology and Intellectual Property, 2004.
19 | P a g e
In the report filed with the US Trade Representative, it is estimated that Nintendo and its partners lost
US$975million worldwide in 2007.26
Nintendo has some measures to tackle these issues:

1. Nintendo has applied commercial and political pressure on both the US Trade Representative
and the Japanese government to combat piracy particularly related to copyright, such as
disconnecting file sharing pirates.
2. In the long run, Nintendo is planning to develop Wii 2, expected to be released in 2010. The
Wii 2 would feature a processor that is capable of combating the piracy issue.
7.2 Establishing Itself in Fitness Industry with Wii Fit

The Wii Fit is one of the latest video game developed by Nintendo for its Nintendo Wii console. It is
a fitness based game which enables players to exercise while playing the game. It was first released in
Japan in December 2007. Since its release, Wii Fit has sold more than 1 million copies in Japan in just
over a month.27 It is scheduled for release by mid 2008 for other markets in Europe and the USA.
Wii Fit game uses yet another innovative controller called the “Wii Balance Board”. The Wii Balance
Board is a peripheral which users step-on while playing the game. The board can also measure user’s
weight and center of gravity. The game itself contains around 40 different activities which include
yoga, hula-hoop, push up, and other exercise.28 The idea of the game is to let family members exercise
together while having fun at the same time, all in the comfort of their living room.
The gaming industry has always been stigmatized with the statement of “Computer games have been
implicated in obesity and inactivity in young people “.29
Nintendo has already got a reputation of keeping the people active with its Wii Tennis, Wii Bowling,
etc. Now it went a step ahead and created Wii Fit as a full fledged Gaming cum fitness equipment.
This is evident from a research conducted among young people regarding the energy levels while
playing Wii’s games.
26
N. Patel, Nintendo estimates it lost $975m worldwide in 2007 due to piracy, Engadget, 14 Feb 2008.
27
P. Elliot, Wii Fit misses out on Japan number 1, GamesIndustry.biz, 6 Dec 2007.
28
M. Casamassina, E3 2007: Nintendo E3 Media Briefing Live Blog, IGN.com, 11 Jul 2007.
29
L. Graves, Comparison of energy expenditure in adolescents when playing new generation and sedentary
computer games: cross sectional study, BMJ, 22 Dec 2007.
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Figure 10: Young People Energy Level while playing Wii.
In the research conducted by Research Institute for Sport and Exercise Sciences, they concluded that
activity by promoting new generation active computer games from companies like Nintendo
significantly increased participants’ energy expenditure compared with sedentary games, but not to the
same extent as the authentic sports. 30
In the development of Wii Fit, Nintendo should take into consideration of the safety issues of its use,
such as providing instructions for proper warm-ups, the maximum playtime for different age groups,
and level of maximum stress the game can deliver.
7.3 Developing Video Games for Education

The utilization of games in education as a mode of learning has been long debated but till now there
are no fruitful outcomes. This is one area where Nintendo can explore in the long run. Nintendo could
develop games that are tailored to the needs of education purposes. This is especially so because
Nintendo users include the very young gamers. This is huge market potential, as this is a largely
untapped (blue ocean) market.
7.4 Integrating Wii with Lifestyle Products

Wii can be integrated with lifestyle product, such as mobile phones, by transforming them into Wii
peripherals. In the research by Vajk et. al.,31 a Nokia 5500 which utilizes a 6g accelerometer and
Bluetooth capability was converted into a Wii controller. This is a proof of concept where lifestyle
products are integrated as Wii controllers. Other lifestyle products containing accelerometer and data
link, such as cameras, can be integrated in a similar manner.
30
Research Institute for Sport and Exercise Sciences, 2007.
31
Vajk, et al, Using a mobile phone as a Wii-like Controller for Playing Games on a Large Public display,
Hindawi Publishing Corporation, 12 Nov 2007.
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8. Future Strategies
With the strategy to broaden the gaming population, Nintendo is no longer fighting against Sony and
Microsoft. Its real enemy is the indifference that many people still feel towards gaming. The industry
has reached a crossroad, by designing products for existing gamers and neglecting non-gamers. This
undermines the prospects for future growth. As emphasized by Iwata, President of Nintendo, there
were signs that the Japanese market was starting to shrink.32 Nintendo needs something radical to
change the situation and continue its effort to tap into the non-gamer market. With the understanding
of where the future lies for Nintendo, this section presents some possible future strategies for
Nintendo:
8.1 Mii – The Digital Avatar for Wii’s Mii Channel

Some gamers are not really fond of personalizing their participating characters in games, Nintendo
can develop another innovation: hassle free personalization. This is done by taking a picture and
placing it automatically in the personal profile, which can save time and add fun to a game. Another
way is to provide cute animal animation as the options, so that gamers can personalize their Miis into
an animal. Indeed, improving Mii by customizing the flavours of different gamers may be able to
increase gaming’s attractiveness.
8.2 Gaming Advertising

Advertisements can also be made inside a game, either in portals or in-game, i.e. when playing Wii
Sports - Tennis, gamer will find himself in a tennis court surrounded by real life advertisements. That
can be a wonderful source of revenue for Nintendo, as well as beneficial for advertisers with ability to
target, timeliness, scalability and flexibility. With increasing number of gamers and time spent on
gaming, gaming advertising can result in a win-win for both advertisers and Nintendo. Nintendo can
use this form of advertisement to sell trademarks which companies may want to venture into. In fact,
the game advertising in Nintendo can become a launching platform for many future products.
8.3 Wii Fit

Nintendo can continue to expand and develop Wii Fit to other forms of games which require players
to feel the adrenaline rush when playing game sports, such as wind surfing, boating.
With highly innovative and fun game titles like Wii Fit, Wii Sports and others, Nintendo has
successfully changed people’s perspective on video games. Usually perceived as toys for boys, video
games can now be played and enjoyed by the whole family. As a result, Nintendo managed to tap into
32
Playing a different game, The Economist, 26 Oct 2006.
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the previously untapped consumers of the video games market. These people include housewives, the
elderly, and the general non-gamer people.
9. Conclusion
The paper has investigated the evolution of the gaming console, emphasizing on the various strategies
adopted by Nintendo to create a success with Wii. The paper also examined the possible patents that
were used to protect the Wii Remote and WiiConnect24. It was found that a total of 97 possible
patents were filed. The paper also used the disruptive innovation model to illustrate how Nintendo
Wii had overcome its competitors. Although Wii does not fit the complete definition of a disruptive
innovation, Nintendo has centered its innovation and strategies on Wii wireless controller to achieve
similar effect. The paper also delineated that the two general value chains of Wii which has made it
different Nintendo’s previous innovations. It also suggested the creation of two new value chains to
generate more revenue for Nintendo. Moving forward, Nintendo has to curb intellectual property
issues particularly related to copyright of their games, and exploit areas such as the fitness industry,
education and lifestyle products. Finally, the paper suggested some future strategies which Nintendo
may adopt to retain their market dominance.
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REFERENCES
[1] Nintendo Company History, Nintendo Inc., 2008.

http://www.nintendo.com/corp/history.jsp
Retrieved on 26 Feb 2008.
[2] The Lucky Birth, N-Sider.com, 2007.

http://www.n-sider.com/articleview.php?articleid=45
[3] K. Takenaka, Nintendo set $85 bln high score, thanks to Wii, Ds, Reuters, 2007.
http://uk.reuters.com/articlePrint?articleId=UKT30751820071015
[4] A Brief History of the Home Video Game Console, The Game Console.
www.thegameconsole.com
[5] Nintendo Land, 2004.

http://www.nintendoland.com/home.htm
Retrieved on 1 Mar 2008.
[6] Brian Bremner, Will Wii Strategy Score?, Newsweek, 20 Sep 2006.
http://www.businessweek.com/globalbiz/content/sep2006/gb20060920_163780.htm
[7] Nintendo Playing a different game, The Economist, 26 Oct 2006.
[8] Console wars, The Economist, 22 Mar 2006.
[9] Microsoft to cut US price of Xbox, BBC News, 7 Aug 2007.

http://news.bbc.co.uk/2/hi/business/6934855.stm
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[10] P. D. Ridder, Nintendo embraces crowdsourcing, Open Innovators, 28 Jun 2007.

http://www.openinnovators.net/nintendo-embraces-crowdsourcing/
[11] Dephion.com, 2008.

http://www.delphion.com
[12] International Patent Classification, Wikipedia, 2008.

http://en.wikipedia.org/wiki/International_Patent_Classification
[13] International Patent Classification, World Intellectual Property Organization, 2008.

http://www.wipo.int/classifications/ipc/ipc8/?lang=en
[14] Select US Classes by Number and Title, United States Patent and Trademark Office,
2008.
http://www.uspto.gov/go/classification/selectnumwithtitle.htm
[15] December and 2007 Video Game Sales – Incredible, Seeking Alpha, 21 Feb 2008.
http://seekingalpha.com/article/60708-december-and-2007-video-game-sales-incredible
[16] S. Fogie, Wii Exposed: Wiinternals, Wii-motes, and a Teardown Wiideo, 20 Nov
2006.
http://www.informit.com/articles/article.aspx?p=677908
[17] S. Hamm, Hot Chips and Cool Console, Businessweek, 17 Sep 2006.
http://www.businessweek.com/the_thread/techbeat/archives/2006/09/hot_chips_and_c.html
[18] C. Christensen, The Innovator’s Dilemma, HaperCollins, 2000.
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[19] Wii Remote, Wikipedia, 2008.

http://en.wikipedia.org/wiki/Wii_Remote
[20] Nintendo annources new revolution name – Wii, Gamasutra, 27 Apr 2006.
http://www.gamasutra.com/php-bin/news_index.php?story=9075
[21] B. Pidgeon, E3 2007: Platform Evolution and Market Growth, IDC, 2007.
[22] D. Jason, Iwata Comments On Wii Controller, Online Functionality, Gamasutra, 2

Jun 2006.
http://www.gamasutra.com/php-bin/news_index.php?story=9556
[23] D. B. Yoffie, M. Kwak, With Friends Like These: The Art of Managing
Complementors, Harvard Business Review Vol. 84, No. 9 Sept 2006.
[24] Electronic Gaming in the Digital Home: Game Advertising, Parks Associates, Page
48, 2007.
,
[25] J. Conley,E. Andros, P. Chinai, E. Lipkowitz, D. Perez, Use of a Game Over:
Emulation and the Video Game Industry, Northwestern Journal of Technology and
Intellectual Property, 2004.
[26] N. Patel, Nintendo estimates it lost $975m worldwide in 2007 due to piracy, Engadget,
14 Feb 2008.
http://www.engadget.com/2008/02/14/nintendo-estimates-it-lost-975m-worldwide-in-2007-
due-to-piracy/
[27] P. Elliot, Wii Fit misses out on Japan number 1, GamesIndustry.biz, 6 Dec 2007.
http://www.gamesindustry.biz/articles/wii-fit-misses-out-on-japan-number-1
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[28] M. Casamassina, E3 2007: Nintendo E3 Media Briefing Live Blog, IGN.com, 11 Jul
2007.
http://uk.wii.ign.com/articles/803/803335p1.html
[29] L. Graves, Comparison of energy expenditure in adolescents when playing new

generation and sedentary computer games: cross sectional study, BMJ, 22 Dec 2007.
http://www.bmj.com/cgi/content/full/335/7633/1282
[30] Research Institute for Sport and Exercise Sciences, 2007.

http://www.bmj.com/cgi/content/full/335/7633/1282/FIG1
[31] Vajk, et al, Using a mobile phone as a Wii-like Controller for Playing Games on a
Large Public display, Hindawi Publishing Corporation, 12 Nov 2007.
[32] Playing a different game, The Economist, 26 Oct 2006.
[33] M. Goldberg, Nintendo Entertainment System 20th Anniversary, 2003.

http://classicgaming.gamespy.com/View.php?view=Articles.Detail&id=208
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2008.
http://www.scei.co.jp/corporate/data/bizdataps2_e.html
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http://www.nintendo.com
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[36] Consolidated Financial Highlights, Nintendo Co Ltd., 24 Jan 2008.

http://www.nintendo.co.jp/ir/pdf/2008/080124e.pdf#page=8
Retrieved 3 Mar 2008.
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APPENDIX A
History of Game Console
• First Generation (1972-1977)
The first generation of video game console was marked by the release of the “Magnavox
Odyssey” in May 1972. The Odyssey was developed by Ralph Baer who was the Chief
Engineer and manager of the Equipment Design Division at Sanders Associates. Other
notable console in the first generation was “Coleco Telstar”.
• Second Generation (1976-1983)

In the history of computer and video games, the second generation (sometimes referred to as
the early 8 bit era) began in 1976 with the release of the Fairchild Channel F by Fairchild
Semiconductor. The Atari 2600 by Atari inc. was the dominant console for much of the
second generation, with other consoles such as the Intellivision, Odyssey 2, and ColecoVision
also enjoying market share.
• 1983 North American Video Game Crash

The North American video game crash of 1983 was the crash of the US video game market in
the early 1980s. It almost destroyed the fledgling industry and led to the bankruptcy of several
companies. The main cause was the hyper-saturation of the market with dozens of consoles
and thousands of mostly low-quality games. This overproduction resulted in a saturated
market without the consumer interest it needed.
• Third Generation (1983-1992)

While video game consoles industry in North America was hitting rock bottom in 1983, the
Japanese were just beginning to make its mark. Nintendo started the third generation video
game consoles (8 bit consoles) with the release of Famicom It was later known as the
Nintendo Entertainment System or NES in North America and gained much success.33 This
era was the basis of the video gaming industry that we know today. This era also introduces
the first console war between Nintendo’s NES and SEGA’s Master System. NES was the
undisputable leader in North America and Japan while Master System was the more popular
console in Europe, Brazil, Australia, and New Zealand.
33
M. Goldberg, Nintendo Entertainment System 20th Anniversary, 2003.
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• Fourth Generation (1987-1996)

The Fourth Generation (16 bit consoles) began with the introduction of NEC’s TurboGrafx-
16. Although NEC started the fourth generation console, the market was dominated by
Nintendo and SEGA with the Super Nintendo Entertainment System and the Sega Mega
Drive/Genesis respectively.
Several other companies released consoles in this generation, but, with the exception of the
Neo Geo by SNK, none of them were widely successful. Nevertheless, other companies
started to take notice of the maturing video game industry and began making plans to release
consoles of their own in the future.
• Fifth Generation (1994-2002)

After the success of Nintendo and SEGA in the previous generation, other companies began
to manufacture their own console. The fifth generation (32 bit) started off with the release of
the 3DO console by Panasonic. Other companies followed soon such as SEGA with SEGA
Saturn (1994) and Sony with PlayStation (1995). These two would later dominated the market
along with the only 64 bit console of the generation the Nintendo N-64 (1996). During this
era, the Sony PlayStation started to took over from Nintendo as the leader in video game
console.34
• Sixth Generation (1998-2006)

This era (128 bit) began on 1998 with the release of the SEGA Dreamcast, and it was joined
by the Sony PlayStation 2 in 2000. The Dreamcast was discontinued in March 2001 and that
same year saw the launch of the Nintendo GameCube in and Microsoft Xbox. Sony further
stamped their authorities in the video game industry with the highly successful PlayStation 2.
The joining of Microsoft in the industry added a strong competition to pressure SEGA and
Nintendo.
• Seventh Generation (2005-present)

The seventh generation saw only three major player left in the industry, Sony, Microsoft, and
Nintendo. At his point, SEGA has stopped developing video game consoles after their failure
in the previous generation console battle.
Microsoft’s Xbox 360 kick-started the console war in the seventh generation in 2005, a year
ahead of its two competitors. This move gave them a head-start which proved to be
34
PlayStation Cumulative Production Shipment, Sony Computer Entertainment Inc., 2008.
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advantageous. Sony’s PlayStation 3 followed in 2006 and Nintendo’s Wii was released a
week later. Despite arguably being the highest performance machine, PlayStation 3 struggled
due to its relatively hefty price tag. The Wii meanwhile, is having a huge success despite
being the lowest performance machine among the three. This is mainly because it introduces
a totally new and innovative game play system.
Brief Explanation of Game Console and How they Fair

1) Famicom / NES
In July 1983, Nintendo released their Famicom (Family Computer) system in Japan, which was their
first attempt at a cartridge-based video game console. The system was a booming success, selling over
500,000 units within two months.35 The console was also technically superior and inexpensive when
compared to its competitors, priced at about $100 USD.
In 1985, Nintendo announced that they were releasing the Famicom worldwide — except under a
different name — the Nintendo Entertainment System (NES) — and with a different design. In order
to ensure the localization of the highest-quality games by third-party developers, Nintendo of America
limited the number of game titles third-party developers could release in a single year to five. The
NES was a major success for Nintendo as it dominated the biggest market in US and Japan. At this
point, Nintendo was considered as the major player in video game console industry.
2) Super Famicom / SNES

The Super Famicom was released in Japan on November 21, 1990. The system's launch was widely
successful, and the Super Famicom was sold out across Japan within three days. In August 1991, the
Super Famicom was launched in the U.S. under the name "Super Nintendo Entertainment System"
(SNES). The SNES was released in Europe in 1992. In Japan, the Super Famicom easily took control
of the gaming market. In the U.S., due to a late start and an aggressive marketing campaign by SEGA
for its Genesis, Nintendo only captured 35% of the market. Over the course of several years, the
SNES in North America eventually overtook the Genesis. Total worldwide sales of the SNES were
higher than the Genesis.
3) Nintendo 64 (N64)
Released in 1996, a year after its competitors, the N64 tried to overtake the market from Sony’s
PlayStation and SEGA’s Saturn. When it was first released, Nintendo 64 (N64) became a huge hit,
both in Japan and North America. However, a combination of Sony’s strong advertising campaign for
PlayStation and N64’s lack of software following the first few months after the system's release
became its downfall. The lack of software developed for N64 was the fact that many third party
35
Nintendo of America.
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companies immediately began developing and releasing many of their leading games for Nintendo's
competing consoles. Many of those third party companies cited cheaper development and
manufacturing costs for the CD format (which the PlayStation and Saturn uses), versus the cartridge
format (N64’s format). Nintendo started to lose its grip on the video game console market.
4) Nintendo GameCube
The GameCube was first released in 2001 in Japan and The US. Despite Nintendo's efforts, the
GameCube has failed to reclaim the market share lost by its predecessor, the Nintendo 64. It is in third
place compared to its competitors, Sony's PlayStation 2 and Microsoft's Xbox.36 Some reasons for the
failure was the lack of support from third party developer and lack of online capabilities compared to
Sony and Microsoft.
UPC Steps
The Manual of Classification contains ordered arrangements of the class and subclass titles, referred
to as class schedules. These titles are necessarily brief, although they are intended to be as suggestive
as possible of subject matter included. Therefore, it is best not to depend exclusively upon titles to
delineate the subject matter encompassed by a class or subclass. Reference to respective definitions
and notes is essential. If a search is to be expeditious, accurate, and complete, the Manual of
Classification should be used only as a key to the class or subclass definition and appended notes.
The Manual of Classification has the following parts:
A list of classes revised in the most recent revision to the Manual and the reason for the revision to
each class. A list of the contents of the Manual showing the current page date for each class and the
year in which the class was originally established.
Overview of the Classification System

A hierarchical arrangement of class titles organized into four main groups by related subject matter. It
should be noted that this hierarchy is to be used to determine document placement only as a last resort,
i.e., when none of the other classification criteria, such as comprehensiveness, etc., allow placement.
This part also includes an exact hierarchical listing of the synthetic resin and chemical compound
classes.
A list, in numerical order, by art unit indicating the classification(s) assigned to each. A list of
classifications in numerical order by class number giving the class title, the art unit to which the art is
assigned, and the examiner search room in which the art can be found. A list of classes is in
alphabetical order by class title with associated class numbers. The class schedule for PLANTS. Class
36
Consolidated Financial Highlights, Nintendo Co Ltd., 24 Jan 2008.
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schedules for utility patent classes arranged in numerical sequence by class number. The class
schedules for the Design classes.
Table A-1: Specifications comparison between different game consoles.
Game Console Sony Microsoft Xbox

Technical Nintendo Wii PlayStation 3 360
Specifications
3.2 GHz Cell
IBM PowerPC- Broadband Engine 3.2 GHz PPC Tri-
Central Processing Unit
based "Broadway" with 1 PPE & 7 Core Xenon
SPEs
NVIDIA-SCEI 500 MHz ATI
Graphics Processing Unit ATI "Hollywood"
"RSX" Xenos
12 cm Wii Optical Blu-ray Disc
Disc, DVD, CD, Super
DVD, DVD-DL,
Media 8 cm Nintendo Audio CD (20 GB,
CD, HD DVD
GameCube Game 60 GB, 80 GB
Disc models)
512 MB Internal
2.5" SATA hard
flash memory, 20 or 120 GB hard
drive
Secure Digital drive, 64, 256 or
System Storage (20 GB, 40 GB,
card, Nintendo 512 MB memory
60 GB, or 80 GB
GameCube cards
included)
Memory Card
Wii Remote, 4 maximum (wired
Up to 7
Nintendo or wireless or
Controller Input Sixaxis/DualShock
GameCube combination of
3 controllers
controller either)
MemoryStick /
PRO / Duo,
SD/MMC,
CompactFlash /
Microdrive, HDMI
Wi-Fi, Bluetooth, 3 × USB 2.0, IR
1.3a out, S/PDIF
Connectivity 2 x USB 2.0, LAN port, 100 Mbit
out, AV Multi out,
Adapter (via USB) Ethernet
IEEE 802.11b/g,
Wi-Fi, Bluetooth
2.0 (EDR), 4 ×
USB 2.0, Wired
Ethernet
PlayStation (all
models),
Nintendo 465 original Xbox
Backward Compatibility PlayStation 2
GameCube games
(20 GB, 60 GB,
80 GB models)
A-5 | P a g e
Table A-2: Participants’ Characteristics and Energy Expenditure.
All (n=11) Boys (n=6) Girls (n=5)
Characteristic
Age (years) 14.6 (0.5) 14.9 (0.3) 14.3 (0.5)
Weight (kg) 60.4 (8.8) 65.4 (8.5) 54.4 (4.7)
Height (m) 1.69 (0.1) 1.78 (0.05) 1.59 (0.04)
Body mass index (kg/m2) 21.2 (2.5) 20.7 (2.6) 21.7 (2.6)
Energy expenditure (kJ/kg/min)
Resting energy expenditure 81.3 (17.2) 83.0 (21.5) 79.3 (12.4)
Predicted energy expenditure
XBOX 360 125.5 (13.7) 127.9 (13.2) 122.6 (15.3)
Wii Sports bowling 190.6 (22.2) 201.8 (16.3) 177.2 (22.2)
Wii Sports tennis 202.5 (31.5) 222.2 (23.4) 178.9 (22.8)
Wii Sports boxing 198.1 (33.9) 206.8 (23.8) 187.7 (43.9)
A-6 | P a g e
APPENDIX B
• Nintendo Wii Patents Details

• US Patent Application Publication US20080015017
• US Patent Application Publication US20070052177
B-1 | P a g e

MT5007 - The Wii Case Study

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THE

Janarthanan Saravanakumar (HT073018L)

Lim Ching Wu Leslie (HT063039Y)

Setho Siu Yuen Clement (HT073022R)

Tan Hock Heng Daniel (HT073000U)

2. Evolution of the Gaming Console

2.2 History of Nintendo, Inc.

2.3 Nintendo As a Video Game Console Company

2.4 Nintendo’s Video Game Consoles

3.1 Sustaining Innovation

3.2 Discontinuous Innovation

3.3 Market Strategy

3.4 Technology Strategy

1. Do it Differently - Nintendo’s competitors consider both processing power and beautiful

3.5 Business strategy

4. Examining the Technological Aspect of

Figure 1: Breakdown of Patents Filed according to IPC11 .

Figure 2: Breakdown of Patents Filed/Granted according to Countries11.

4.1 International Patent Classification

4.2 United States Patent Classification

US to IPC8 Concordance for Class 463 AMUSEMENT DEVICES: GAMES

Regarding US-to-IPC Concordances [Concordances between US Patent Classification and the

5. Overcoming the Competition

5.1 What is Nintendo Wii?

Figure 3: Disassembled Wii16.

5.2 The Disruptive Innovation Model

5.3 The Wii Remote

Figure 4: Wii Zapper.

Figure 5: Wii Wheel.

Figure 6: Wii Fit.

Figure 7: Wii Remote Accessories.

5.5 Brand Culture

6. Nintendo Wii’s Value Ecosystem

Figure 8: Game Console Value Ecosystem.

6.1 Current Value Chain

6.2 Creating New Value Chains

7. The Way Forward

7.1 Tackling Piracy

Nintendo has some measures to tackle these issues:

7.2 Establishing Itself in Fitness Industry with Wii Fit

Figure 10: Young People Energy Level while playing Wii.

7.3 Developing Video Games for Education

7.4 Integrating Wii with Lifestyle Products

8.1 Mii – The Digital Avatar for Wii’s Mii Channel

8.2 Gaming Advertising

8.3 Wii Fit

[1] Nintendo Company History, Nintendo Inc., 2008.

[2] The Lucky Birth, N-Sider.com, 2007.

[5] Nintendo Land, 2004.

[7] Nintendo Playing a different game, The Economist, 26 Oct 2006.

[8] Console wars, The Economist, 22 Mar 2006.

[9] Microsoft to cut US price of Xbox, BBC News, 7 Aug 2007.

[10] P. D. Ridder, Nintendo embraces crowdsourcing, Open Innovators, 28 Jun 2007.

[11] Dephion.com, 2008.

[12] International Patent Classification, Wikipedia, 2008.

[13] International Patent Classification, World Intellectual Property Organization, 2008.

[18] C. Christensen, The Innovator’s Dilemma, HaperCollins, 2000.

[19] Wii Remote, Wikipedia, 2008.

[22] D. Jason, Iwata Comments On Wii Controller, Online Functionality, Gamasutra, 2

[29] L. Graves, Comparison of energy expenditure in adolescents when playing new

[30] Research Institute for Sport and Exercise Sciences, 2007.

[32] Playing a different game, The Economist, 26 Oct 2006.

[33] M. Goldberg, Nintendo Entertainment System 20th Anniversary, 2003.

[34] PlayStation Cumulative Production Shipment, Sony Computer Entertainment Inc.,