Nintendo II (1990-2023)
The epic story of Nintendo’s fall from grace and journey back to the top.
In the 1980’s Nintendo was on top of the world, with the NES achieving over 90% market share of home video games globally. So how did they fall ALL the way down to ~10% in just a few short console generations? And how did they then build themselves back up (and down and up again) to the top once more? Spoiler: it all hinged on one very small, yet very large and durable platform… the Game Boy.
Kyle’s Rating: 7/10
This episode delivers a fascinating deep dive into Nintendo's cyclical journey of triumphs and failures, particularly highlighting how the company's own hubris and strategic missteps repeatedly undermined its success—from betraying Sony at CES to stubbornly clinging to cartridges when the industry moved to CDs. The most compelling thread follows how the Game Boy's unexpected success using "withered technology" became Nintendo's financial lifeline during its darkest console wars period, illustrating the tension between Nintendo's innovative artistry and commercial pragmatism. While not as gripping as some episodes, it effectively captures the "seeds of success and failure" theme that defines Nintendo's resilience and provides solid insights into how a gaming giant repeatedly reinvented itself despite getting in its own way.
Company Overview
Company Name: Nintendo Co., Ltd.
Founding Year: 1889
Headquarters Location: Kyoto, Japan
Core Business: Nintendo develops and sells video game hardware and software, focusing on innovative gaming experiences through proprietary consoles and iconic intellectual property (IP) such as Mario, Zelda, and Pokémon. Its significance lies in its ability to shape the gaming industry through groundbreaking hardware designs and timeless game franchises, maintaining a unique position despite intense competition from larger players like Sony and Microsoft.
Timeline
1989: Nintendo releases the Game Boy in Japan (April) and the US (July) for $89.95, a portable, cartridge-based console using "withered" calculator technology, achieving instant success with 300,000 units sold in Japan and 1.1 million in the US.
1991: Nintendo betrays Sony at CES, announcing a CD-ROM partnership with Philips instead of Sony, leading to Sony’s development of the PlayStation.
1994–1995: Sony launches the PlayStation, a 32-bit CD-based console, in Japan (1994) and the US (1995), significantly outpacing Nintendo’s offerings.
1996: Nintendo releases the Nintendo 64 (N64), a 64-bit cartridge-based console, which sells 33 million units but struggles with high development costs and limited third-party support.
2001: Nintendo releases the GameCube, a mini-DVD-based console, selling only 21 million units, losing to Sony’s PlayStation 2 (155 million units) and Microsoft’s Xbox (24 million units).
2004: Nintendo launches the Nintendo DS, selling 154 million units, becoming the second-best-selling console ever and dominating the casual and kids’ gaming markets.
2006: Nintendo releases the Wii, a motion-controlled console, selling over 100 million units and revitalizing its home console business.
2012: Nintendo reports its first annual loss, driven by declining Wii and DS sales amid mobile gaming’s rise.
2016: Pokémon GO, developed by Niantic, launches as a mobile game, driving Nintendo’s stock price up 100% temporarily, though it has minimal direct revenue impact.
2017: Nintendo launches the Switch, a hybrid home-portable console, selling 123 million units by 2023, becoming a major success.
2023: The Super Mario Bros. Movie releases, leveraging Nintendo’s IP for broader media exposure.
Narrative
This episode picks up where the last Nintendo episode leaves off. It traces Nintendo’s tumultuous journey from its 1980s dominance to its modern resurgence, emphasizing its cyclical triumphs and failures driven by innovation, hubris, and resilience. In 1990, Nintendo held an unprecedented 95% global market share with the Nintendo Entertainment System (NES), bolstered by iconic games like Super Mario Bros. and a robust third-party ecosystem. However, Nintendo’s complacency and strategic missteps led to a dramatic fall, only to be saved by its handheld business and later revitalized by the Nintendo Switch.
The story begins with the Game Boy’s 1989 launch, a “small, giant success” engineered by Gunpei Yokoi using “lateral thinking with withered technology.” Despite skepticism over its black-and-green screen, the Game Boy’s affordability ($89.95) and killer app, Tetris, expanded gaming to adults and kids alike, selling 32 million units in three years and 118 million (including Game Boy Color) lifetime. This handheld juggernaut provided a financial cushion as Nintendo faced challenges in the home console market.
The 1990s saw Sega’s Genesis, led by Tom Kalinske’s brilliant four-point plan, erode Nintendo’s dominance. The Super Nintendo (SNES), launched in 1991, fought to a draw, losing backward compatibility to compete on price, negating Nintendo’s massive NES install base. By the mid-1990s, Nintendo’s market share plummeted to 50%, and its brand took hits from antitrust lawsuits and ill-advised moves like suing Blockbuster over game rentals.
The narrative darkens with the 1996 Nintendo 64 (N64), which, despite pioneering 3D gaming with Super Mario 64, struggled against Sony’s PlayStation. Nintendo’s betrayal of Sony at the 1991 CES—abandoning a joint CD-ROM project for a Philips partnership—ignited Sony’s wrath, leading to the PlayStation’s 1994 launch. The PlayStation’s CD format, ease of development, and Sony’s financial might ($38 billion vs. Nintendo’s $4 billion in 1994 revenue) crushed the N64, which sold only 33 million units to the PlayStation’s 102 million.
The GameCube (2001) fared worse, selling 21 million units against the PlayStation 2’s 155 million, as Nintendo’s cartridge obsession and mini-DVD choice alienated developers. Meanwhile, the handheld business thrived, with the Game Boy Advance (81 million units) and DS (154 million units) dominating the kids’ and casual markets with titles like Pokémon and Brain Age. This duality—home console failures offset by handheld successes—kept Nintendo’s revenue stable at $4–5 billion annually, allowing it to weather strategic blunders.
The Wii (2006) marked a triumphant return, leveraging motion controls to capture the casual market, selling over 100 million units and driving peak revenue of $18 billion in 2009. However, the mobile gaming revolution, sparked by the 2008 App Store, decimated Nintendo’s casual audience, leading to a 2012 loss and the disastrous Wii U (13 million units).
Under Satoru Iwata’s leadership, Nintendo pivoted with a three-point plan: embracing mobile (e.g., Pokémon GO, Super Mario Run), leveraging IP through movies and theme parks, and reimagining hardware with the Switch (2017).
The Switch, a hybrid console, defied skeptics, selling 123 million units by 2023 with Zelda: Breath of the Wild achieving a 100% attach rate. Today, Nintendo balances its hardware-software model with a growing digital business ($3 billion annually, including $1 billion recurring), but its future hinges on the Switch’s successor, as Ben and David speculate on whether Nintendo can sustain its platform or risk another fall.
Sega of America’s Four-Point Plan
In 1990, Sega of America, under new CEO Tom Kalinske, implemented a four-point plan to challenge Nintendo’s 95% market share, as detailed by Ben and David. First, Sega preemptively cut the Genesis price from $200 to $150, forcing Nintendo to launch the SNES at $199 without backward compatibility, negating its NES install base advantage. Second, Kalinske bundled Sonic the Hedgehog, a fast-paced “Mario killer,” with every Genesis, driving sales despite forgoing game revenue. Third, Sega developed American-focused games, notably securing Madden through a favorable deal with Electronic Arts ($2 per unit vs. $10 for others), appealing to US audiences. Fourth, Sega adopted aggressive marketing, hiring Steve Race to create the “Welcome to the Next Level” campaign, targeting teenagers with the “Sega scream” and mall-based head-to-head challenges against Nintendo. This plan halved Nintendo’s market share to 50% by the mid-1990s, as the Genesis outsold the SNES in the US, exposing Nintendo’s hubris and weakening its third-party developer control and brand among older gamers. The episode highlights this as a masterclass in competing against an incumbent, though Sega’s later missteps (e.g., Saturn, Dreamcast) limited its long-term impact.
Lateral Thinking with Withered Technology
Gunpei Yokoi’s “lateral thinking with withered technology” philosophy defined Nintendo’s handheld success and influenced its home consoles. By using mature, low-cost technologies (e.g., calculator chips for the Game Boy, infrared for the Wii), Nintendo created affordable, accessible devices with long battery life, counter-positioning against competitors’ high-powered systems. The Game Boy’s black-and-green screen, initially mocked, sold 118 million units by leveraging Tetris’s universal appeal. The Wii’s motion controls, using decades-old infrared technology, captured 100 million casual gamers. This approach enabled Nintendo to target underserved markets (kids, casual players) while maintaining hardware margins, unlike Sony and Microsoft’s subsidized consoles. However, the episode notes that this philosophy faltered with the Wii U, and its relevance wanes in the mobile era, where high-powered smartphones dominate.
Seeds of Success and Failure
Ben and David emphasize a core theme: “the seeds of success are sown in falls, and the seeds for falls are in successes.” Nintendo’s 1980s NES dominance (95% market share) bred hubris, leading to missteps like the Sony betrayal and cartridge obsession, causing its 1990s–2000s decline. Conversely, failures like the GameCube and Wii U forced innovation, yielding the Wii and Switch successes. This cyclical pattern underscores Nintendo’s resilience but highlights the risk of complacency, as past triumphs (e.g., Wii’s $18 billion revenue peak) sowed vulnerabilities to mobile disruption.
Notable Facts
Game Boy’s Impact: The Game Boy, launched in 1989, sold 118 million units (including Color), becoming the fourth-best-selling console ever, driven by Tetris and its appeal to both kids and adults (46% of US players were adults).
Pokémon’s Scale: The Pokémon franchise, launched in 1996, generated nearly $100 billion lifetime, with $60 billion from merchandise and $35 billion from games, outpacing the Marvel Cinematic Universe’s $30 billion.
Wii’s Revolution: The Wii (2006) sold over 100 million units, surpassing the PlayStation 3 and Xbox 360, by targeting casual gamers with motion controls and games like Wii Sports.
Switch’s Comeback: The Switch (2017) sold 123 million units by 2023, with Zelda: Breath of the Wild achieving a 100% attach rate, a first for a non-bundled game.
IP Strategy: Nintendo’s non-gaming ventures (mobile, theme parks, movies) contribute only 3% of revenue, serving as brand-building rather than profit drivers.
Financial & User Metrics
Game Boy (1989–2001): Sold 118 million units (including Color), generating $3 billion in hardware sales in the first three years at ~$100 per unit.
Game Boy Advance (2001–2004): Sold 81 million units at ~$100 per unit, yielding $8 billion in hardware revenue and 375 million software units sold.
Nintendo DS (2004–2014): Sold 154 million units at ~$100 per unit, generating $15 billion in hardware revenue and nearly 1 billion software units at ~$30 each, yielding $30 billion.
Wii (2006–2012): Sold over 100 million units, driving peak revenue of $18 billion in 2009 and operating income of $5 billion.
Wii U (2012–2017): Sold 13 million units, contributing to annual losses from 2012–2017.
Switch (2017–2023): Sold 123 million units by 2023, generating $10–16 billion annually, with $5–6 billion in operating income and a $3 billion digital business ($1 billion recurring via Nintendo Switch Online).
Nintendo Switch Online (2018–2023): 35–40 million subscribers at $20–$50 annually, yielding ~$1–1.5 billion in recurring revenue.
Market Cap: Peaked at $70 billion in 2007, fell to $8 billion in 2012, and stabilized at $47 billion in 2023.
Pokémon GO (2016): Over 500 million downloads in 2016, generating ~$1 billion annually, but minimal direct revenue for Nintendo due to licensing through The Pokémon Company (32% Nintendo-owned).
Super Mario Run (2016): 700 million downloads, but only $75 million in revenue due to a one-time purchase model.
Intellectual Property Analysis
Nintendo’s intellectual property (Mario, Zelda, Pokémon) is a cornerstone of its strategy, as Ben and David emphasize. Valued at nearly $100 billion for Pokémon alone, this IP drives brand loyalty across generations, fueling console sales (e.g., Switch’s 123 million units) and multimedia ventures like the Super Mario Bros. Movie and Super Nintendo World. Unlike Disney, which integrates IP into a flywheel of parks and merch, Nintendo’s IP strategy prioritizes brand-building over revenue, contributing only 3% to its top line. Pokémon GO and Super Mario Run demonstrate IP’s reach but highlight Nintendo’s reluctance to embrace mobile monetization, limiting financial upside. This IP strength ensures long-term relevance but requires careful management to avoid over-reliance on hardware.
Bear Case & Bull Case
Bear Case:
Nintendo missed the mobile gaming boom ($90 billion market), with only 3% of revenue from mobile, licensing, and theme parks, limiting growth potential.
The Switch consolidates Nintendo’s home and handheld businesses, leaving no backup if the next console fails, as seen with the Wii U’s 13 million units.
Nintendo struggles with live-service games (e.g., Fortnite), which require constant updates, unlike their “ship-and-done” model.
Revenue ($13 billion in 2023) remains below the 2008 peak ($18 billion), and a failed Switch successor could trigger another crisis.
Bull Case:
The Switch’s 123 million units and $3 billion digital business ($1 billion recurring) position Nintendo as a platform with Apple-like potential, with a low price-to-sales ratio (3.5x) compared to Apple (7x).
Nintendo’s IP (Mario, Zelda, Pokémon) is among the most valuable in gaming, driving brand loyalty and multimedia opportunities (e.g., Super Mario Bros. Movie, Super Nintendo World).
A Switch successor with backward compatibility could leverage the 35–40 million Nintendo Switch Online subscribers, ensuring ecosystem retention and growth.
Crossroads Capital’s thesis suggests Nintendo’s $47 billion market cap undervalues its $3 billion digital business, which could be worth $21 billion alone, plus $13 billion for hardware and licensing.
Powers
Unlike the earlier years of Nintendo, the Nintendo of 1990 and beyond does not harness all 7 powers.
Cornered Resource: Ben and David explicitly identify Nintendo’s IP (Mario, Zelda, Pokémon) as its primary power, a unique asset no competitor can replicate. This drives brand loyalty, enabling the Switch’s success (123 million units) and multimedia ventures (e.g., Pokémon’s $100 billion franchise), strengthening Nintendo’s mid-core market position.
Process Power: The hosts suggest Nintendo’s game development process, rooted in Shigeru Miyamoto’s meticulous design (e.g., Zelda: Breath of the Wild), is a potential power. This disciplined approach ensures high-quality, polished games but limits scalability in live-service models, as Nintendo avoids post-launch updates.
Switching Costs: Nintendo Switch Online creates switching costs, as 35–40 million subscribers risk losing digital game progress after a six-month grace period if subscriptions lapse. This incentivizes retention but is weaker than historical NES-era switching costs and comparable to Sony and Microsoft’s models.
Counter-Positioning: Nintendo counter-positions against smartphone gaming by emphasizing quality over shovelware. The Switch’s curated ecosystem ensures high-quality games, appealing to mid-core and indie players, unlike mobile’s microtransaction-driven model, which Nintendo philosophically opposes.
Playbook
A Delayed Game is Eventually Good, a Bad Game is Bad Forever: Shigeru Miyamoto’s quote, cited by Ben and David, underscores Nintendo’s focus on polished, high-quality games (Zelda, Mario). This ensures customer trust and brand strength but contrasts with live-service models (Fortnite), limiting Nintendo’s adaptability in dynamic markets. Delays, like Zelda: Breath of the Wild, yield masterpieces but risk missing market windows.
Jobs to be Done: Nintendo excels at serving underserved markets (kids, casual gamers) with the Game Boy and DS, addressing specific needs (affordable, non-violent gaming) ignored by Sony and Microsoft. This drives accessibility and broad appeal, as seen in Tetris and Wii Sports, shaping the Wii and Switch’s success.
Difference Between Switch and Smartphone Games: The Switch emphasizes quality, curated experiences, avoiding mobile’s “shovelware” and predatory microtransactions. Ben and David note its appeal to mid-core and indie players, with high-intent purchases ($20–$60 games) vs. mobile’s low ARPU (1¢–40¢). This counter-positioning ensures a premium gaming experience but limits market size.
Why Was Nintendo Not Bought by Disney?
Ben and David speculate on why Disney, which acquired Pixar, Lucasfilm, and Marvel, did not buy Nintendo, especially in 2012 when its market cap was $12 billion. They suggest Japan’s cultural resistance to foreign ownership of a national treasure like Nintendo, evidenced by its Olympic nods to Mario, likely prevented such a deal. Disney may have considered Nintendo’s IP (Mario, Zelda) ideal for its flywheel but deemed gaming hardware outside its core competency, unlike movie-driven IP. They speculate that Japan’s government might have intervened to protect a cultural icon, ensuring Nintendo’s independence despite its strategic fit with Disney.
Carveouts
David’s Carveouts:
Vanity Fair article on Kara Swisher: A recent profile of the tech journalism pioneer, highlighting her career post-ReCode and her energy as a parent and professional.
Hardcore History podcast: David praises Dan Carlin’s in-depth historical storytelling, an inspiration for Acquired’s narrative style.
Ben’s Carveouts:
Tetris movie: A fun, dramatized depiction of Tetris’s journey from the Soviet Union to the Game Boy, recommended for its entertainment value.
Invest Like the Best episode with Daryl Morey: An interview with the Philadelphia 76ers’ President of Basketball Operations, discussing game balance and competition, relevant to Nintendo’s design philosophy.
Additional Notes
Episode Metadata:
Number: Season 12, Episode 4
Title: Nintendo: The Console Wars
Duration: 3 hours, 17 minutes, 36 seconds
Release Date: April 11, 2023
Related Episodes:
Nintendo’s Origins (Season 12, Episode 3, March 15, 2023)
The Electronic Arts IPO (with Trip Hawkins) (Season 4, Episode 7, May 27, 2019)
SONY (Season 10, Episode 3, March 7, 2022)