Business Insight Zone

Today’s Company of the Day is Nintendo.

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Nintendo can’t call upon the vast array of resources enjoyed by rival makers of video game consoles. Microsoft, which makes the Xbox 360, is the #1 software maker in the world, and its products enjoy, shall we say, robust market penetration. In the last quarter, Sony’s gaming unit lost a bundle because the PlayStation 3 has yet to sell in great numbers, yet Sony still turned a tidy profit thanks to the box office heroics of its Spider-Man 3. Meanwhile, little ol’ Nintendo plugs away, racking up huge profits of the back of its Wii gaming console (and its DS handheld gaming device). Nintendo’s performance in the past year has been so good that, in the world of video games, the $8 billion company now sets the tone for the $70 billion Sony and the $50 billion Microsoft.

Nintendo’s success is built upon superior design. On a purely technological basis, the Wii is nowhere near as sophisticated as the Xbox 360 or the PlayStation 3. Indeed hard-core gamers regard the Wii more like a kid’s toy — which is precisely the point for Nintendo. It designed the Wii with simple but fun games made to appeal to everyone, an approach that has paid off in spades as non-gamers — moms and dads, little kids, grandparents, you name it — have taken to the Wii in a big way. On top of this, Nintendo’s relatively low-fi approach has meant that every single Wii sold adds to the company’s bottom line. The pricey components inside rival consoles mean that Microsoft and Sony are still losing lots of money with every unit they sell. How well has this worked out for Nintendo? After the first quarter of its fiscal year (which ends in March 2008), the company was able to increase its annual profit estimate by 40%. Not bad for a David taking on two technological Goliaths.

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For more of this blog’s analysis on the video game business, see here and here.