The Nintendo Business Model In A Nutshell

Nintendo is a Japanese consumer electronics and video company founded in 1889 as Nintendo Karuta – a manufacturer of decorated, hand-made playing cards. By the 1980s, the company made significant investments in a rising technology: video games. It then produced popular titles like Donkey Kong and, later on, Super Mario Bros. Today Nintendo generates revenues through video game franchise sales, e-commerce, and the Unfold System.

History of Nintendo

Nintendo is a Japanese consumer electronics and video company headquartered in Kyoto, Japan.

The company was founded in 1889 as Nintendo Karuta – a manufacturer of decorated, hand-made playing cards. Nintendo would produce these cards for over seven decades, but sales fell after the cards became associated with gambling and Japanese organized crime.

In 1950, 22-year-old Hiroshi Yamauchi took control over Nintendo and expanded the product range to include toys and amusement arcades. Over twenty years later, Yamauchi made a significant investment in an emerging technology: video games. The popular title Donkey Kong was released in 1980, catapulting the company to the global stage.

The even more successful Super Mario Bros. was released five years later, named after the landlord who owned Nintendo’s American headquarters. The success of the game was nicely complemented by the release of the Game Boy in 1989, the first handheld electronic game console. This pioneering success has been built upon with the subsequent releases of consoles including the Super Nintendo Entertainment System, Nintendo 64, Nintendo DS, GameCube, Wii, and Nintendo Switch. 

Today, the company continues to be an innovative player in gaming and consumer electronics. Profits in 2020 were 376.6 billion JPY, or approximately $3.6 billion.

Value Proposition:

• Innovative Gaming Experiences: Nintendo is known for its innovative and immersive gaming experiences that cater to players of all ages and skill levels. With iconic franchises like Mario, Zelda, and Pokémon, Nintendo offers engaging gameplay, captivating storytelling, and memorable characters that resonate with gamers worldwide.
• Family-Friendly Entertainment: Nintendo’s games and consoles are designed to provide family-friendly entertainment that can be enjoyed by players of all generations. With a focus on fun, creativity, and accessibility, Nintendo creates gaming experiences that bring families and friends together, fostering social interaction and shared enjoyment.
• Unique Hardware and Accessories: Nintendo’s hardware innovations, such as the Nintendo Switch console and its modular design, offer versatility and flexibility in gaming experiences. Additionally, Nintendo’s diverse range of accessories, including Joy-Con controllers, Labo kits, and amiibo figures, enhance gameplay and customization options for players.
• Nostalgia and Heritage: Nintendo’s rich history and legacy in the gaming industry evoke feelings of nostalgia and sentimentality among fans. By continuing to celebrate and build upon its classic franchises and characters while also introducing new concepts and innovations, Nintendo appeals to both longtime enthusiasts and new generations of gamers.

Nintendo revenue generation

Traditionally, console-based home entertainment companies make money via the continual creation and licensing of games.

Let’s take a look at how this plays out for Nintendo.

Video game franchise sales

Nintendo is well-known for regularly adding too many of its video game franchises with periodic releases. For example, the Super Mario franchise has been running since 1985. 

This strategy builds brand loyalty and allows the company to charge a relatively high price for its products.

eCommerce

Nintendo sells gaming consoles, games, and gaming accessories via their online store. 

Games are also available for purchase directly from the gaming console interface. By allowing users to download games with an internet connection, the company saves money on the distribution and physical production of games.

Unfold System

The Nintendo Unfold System is an evolution of the franchise sales model.

Instead of Nintendo paying developers to make and release new titles, the onus is on the consumer to pay to expand a single game. An unfolding game differs from expansion packs or franchise titles in that entire parts of the game are hidden and locked at release. As the customer becomes more invested, they pay Nintendo to unlock additional features, adventures, or lands.

For the company, this is seen as a far less risky strategy than franchising. Rather than building a new game on the same platform as the existing game, Nintendo simply keeps the existing base and charges the customer for any new features it develops.

In theory, the Unfold System expansion method can be used indefinitely. Games may have no endpoint and a new version may only be necessitated by a console upgrade.

Smash Bros: Ultimate

The fighting game Smash Bros: Ultimate is already utilizing the Unfold System. Users must now purchase a season pass to take part in each game iteration – otherwise known as a season.

In 2019, the first season was charged at $24.99. This fee gave players access to exclusive items, stages, and five new characters. The following year, the game was unfolded further to incorporate a second season that was charged at $29.99 for six new characters.

Pokémon – which Nintendo owns a 32% stake in – has also added new lands and adventures using this revenue strategy.

Revenue Model:

• Hardware Sales: Nintendo generates revenue through the sale of its gaming hardware, including consoles such as the Nintendo Switch, Nintendo Switch Lite, and handheld devices like the Nintendo 3DS family of systems. Revenue from hardware sales is derived from the sale of consoles and accessories bundled with the hardware.
• Software Sales: The sale of software, including video games developed and published by Nintendo, is a significant source of revenue for the company. Nintendo’s software sales encompass both physical copies and digital downloads of games available on its platforms, including first-party titles and third-party partnerships.
• Subscription Services: Nintendo offers subscription-based services such as Nintendo Switch Online, which provides access to online multiplayer gaming, a selection of classic NES and SNES games, cloud save data backup, and exclusive member benefits. Revenue from subscription services is generated through monthly or annual membership fees.
• Licensing and Merchandising: Nintendo licenses its intellectual properties and characters for use in various merchandise and consumer products, including toys, apparel, accessories, and collectibles. Revenue from licensing and merchandising agreements is earned through royalties and licensing fees paid by third-party manufacturers and retailers.
• Amiibo and Accessories: Nintendo’s amiibo platform, which consists of interactive NFC figures and cards, generates revenue from the sale of physical collectible figures and related accessories. Additionally, revenue is generated from the sale of accessories such as Joy-Con controllers, Pro Controllers, carrying cases, and other peripherals designed for Nintendo’s gaming platforms.

Marketing Strategy:

• Brand Identity and Recognition: Nintendo focuses on building and maintaining a strong brand identity that emphasizes its reputation for quality, innovation, and family-friendly entertainment. Through iconic franchises, recognizable characters, and memorable experiences, Nintendo cultivates brand loyalty and recognition among gamers worldwide.
• Product Launches and Announcements: Nintendo utilizes strategic product launches, announcements, and promotional events to generate excitement and anticipation for new hardware, software releases, and gaming experiences. Events such as Nintendo Direct presentations, E3 showcases, and product unveilings drive consumer interest and engagement.
• Content Creation and Community Engagement: Nintendo actively engages with its community of fans and content creators through social media channels, official websites, and online forums. By sharing news, updates, and user-generated content, Nintendo fosters a sense of community and inclusivity, encouraging fan participation and interaction.
• Partnerships and Collaborations: Nintendo collaborates with third-party developers, publishers, and partners to expand its gaming library, offer exclusive content, and reach new audiences. Strategic partnerships, co-marketing initiatives, and cross-promotional campaigns help Nintendo broaden its appeal and attract diverse demographics.

Distribution Channels:

• Retail Partnerships: Nintendo distributes its hardware, software, and accessories through a network of retail partners, including brick-and-mortar stores, online retailers, and specialty gaming shops. By partnering with established retailers and distributors, Nintendo ensures widespread availability and accessibility of its products to consumers globally.
• Digital Platforms: Nintendo operates digital distribution platforms such as the Nintendo eShop, where users can purchase and download digital games, downloadable content (DLC), and software updates directly to their Nintendo consoles. The Nintendo eShop provides a convenient and accessible way for users to access a vast library of digital content.
• First-Party Stores: Nintendo operates its own first-party retail stores, such as Nintendo New York in the United States and Nintendo Tokyo in Japan. These flagship stores serve as showcase locations for Nintendo’s products, offering exclusive merchandise, hands-on demos, and interactive experiences for fans and visitors.
• Direct Sales Channels: Nintendo sells its products directly to consumers through its official website and online store. By offering direct sales channels, Nintendo can reach consumers who prefer to purchase directly from the company, providing a seamless shopping experience and access to exclusive promotions and offers.
• Events and Experiences: Nintendo participates in industry events, gaming conventions, and promotional tours to showcase its products and engage with fans directly. Events such as Nintendo-hosted demos, tournaments, and experiential activations allow fans to interact with Nintendo’s latest hardware and software releases in-person, driving excitement and engagement.

Nintendo in numbers

Key takeaways

• Nintendo is a video game and consumer electronics company headquartered in Kyoto, Japan. The company was founded in 1889 as a manufacturer of decorative, hand-made playing cards.
• Nintendo makes money by creating and licensing video games. The company has been particularly successful in building brand loyalty via high-quality franchise releases.
• Nintendo also sells access to additional game features as part of its Unfold System. Instead of paying developers to build new games on the same base, players pay Nintendo to expand access within a single game.

Key Highlights

• Founding and Evolution: Nintendo was founded in 1889 as Nintendo Karuta, a manufacturer of decorative playing cards. Over time, the company expanded into toys and arcade games.
• Video Game Ventures: In the 1980s, Nintendo entered the video game industry with successful titles like Donkey Kong and Super Mario Bros. This marked the company’s significant shift towards gaming.
• Console Successes: Nintendo released a series of popular gaming consoles, including the Game Boy, Super Nintendo Entertainment System, Nintendo 64, Nintendo DS, GameCube, Wii, and Nintendo Switch.
• Revenue Streams:
  • Video Game Franchise Sales: Nintendo’s main revenue source is its video game franchises. It regularly releases new titles in established franchises like Super Mario, building brand loyalty and charging premium prices.
  • eCommerce: The company sells consoles, games, and accessories through its online store, as well as offering game downloads directly via the console interface.
  • Unfold System: Nintendo introduced the Unfold System, where players can expand a single game by paying for additional features and content. This approach reduces the risk associated with building entirely new games.
• Financial Performance:
  • In 2022, Nintendo’s revenue was 1.695 trillion yen.
  • Net income reached its highest in 2021, at 530.5 billion yen.
  • Employee count grew steadily, with the highest count of 6,717 employees in 2022.
• Innovative Strategies:
  • Nintendo’s Unfold System, exemplified by games like Smash Bros: Ultimate and elements of Pokémon, allows players to purchase access to new features, characters, and content within a single game.
• Brand Loyalty and High-Quality Games:
  • Nintendo’s success has been built on its ability to maintain brand loyalty through high-quality and innovative game releases, especially within its iconic franchises like Super Mario.

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