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From Dominance to Competition: A Story of Nintendo's Journey in the Gaming Industryby@chinechnduka
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8,526 reads

From Dominance to Competition: A Story of Nintendo's Journey in the Gaming Industry

by Chinecherem NdukaFebruary 15th, 2023
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In the early 1980s, the video game market was in decline following the collapse of Atari. Nintendo saw an opportunity to enter the market with a new console, the Nintendo Entertainment System. By 1989, Nintendo utterly dominated the games sector with a 95% share of the console sector. The NES is a third-generation gaming console that sold 62 million units worldwide. Today, Nintendo is no longer the top major player in the market but still maintains a high market capitalization. Currently, the top five largest video game companies by market cap are Microsoft, Tencent, Sony, Activision Blizzard, and NetEase. Meanwhile, Nintendo is still the world's oldest video game company that is still in operation and continues to be one of the largest solely video game developers in the world. The company continues to hold the top spot on the list of the biggest video game publishers in the world, accounting for 9.7% of the total income generated by the video game software publishing sector as of the time of writing.

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For much of the 20th century, Nintendo dominated the playing card market in Japan the same way it would dominate the video game industry decades later. In the 1990s, about a century after Nintendo was founded, it already controlled the video game industry with an estimated market share of more than 80%. The Japanese gaming giant had achieved unprecedented success in the United States and around the world.


Following is a dive in on the rise and fall of Nintendo's dominance in the video game market.


Nintendo's Early Days

The history of video games might have looked like it opened up with Atari taking the stage. Truth is, however, the first video game prototypes were created in laboratories in the 1960s, but then, the industry's growth was largely attributed to Atari's introduction of Pong in 1972.


Nintendo's dominance started when the video game industry was experiencing a repulse. As of the early 1980s, the video game market was in decline following the collapse of Atari.


While Atari fell through the ropes, Nintendo released an electronic toy game called "Beam Gun" (later known as Zapper) in 1984 that was compatible with arcade games, and this, in part, also will help catapult Nintendo to the top of the game market at the time. With sales of more than 29 million copies, the Zapper will later come to rank among the most popular game accessories.


Arcade gaming rose to prominence in the 1970s both in Japan and throughout the world. The arcade table tennis game was what became very popular first, and this attracted a lot of players and businesses into the market; the challenge, however, was that these businesses started making their own imitations. In line with this with the rush, Atari released a home console version of Pong in 1975. Later, in 1977, it also released its own home console, the Atari 2600, which went on to become the first console to sell more than a million units.


But the big stumble started when Atari licensed extraordinarily expensive ports of Pac-Man and an E.T. the Extra-Terrestrial video game in an effort to tap into the expanding home console market. This particular step cost the corporation millions in returns and many more in reputation harm because the products were hurried to market, and released in subpar condition.


Arcade games brought in $27 billion in revenue in 1982, while console sales came in around $14 billion. In a desperate rush for a piece of the action, video game producers crowded the market, and many additional diminutive attempts at games and systems led to a decline across the sector as other businesses also sought to profit on the market. Arcade game sales fell by 66% and console game sales fell by 93% between 1982 and 1985, and Atari suffered a $536 million loss in 1983.


By 1987, Nintendo controlled 65% of the market for video game hardware, and from 80% just a few years before, Atari's market share had decreased to 24%.


Nintendo saw an opportunity to enter the market with a new console, the Nintendo Entertainment System (NES). The NES was introduced in the United States in 1985 and was an immediate success. By 1989, Nintendo utterly dominated the games business, owning a 95% share of the console sector.


One of the key factors in the NES's success was the release of the game Super Mario Bros. The Nintendo NES is a third-generation gaming console that sold 62 million units worldwide until it was discontinued in 1995. It is renowned as the longest-lasting video gaming platform in history. The game quickly became a cultural phenomenon and also helped to establish Nintendo as a major player in the video game industry.


Nintendo also did something remarkable during the downturn, which can equally be attributed to its success, after the market suffered a succession of mediocre game releases, it became obvious that almost no one wanted to buy video games. They started using clever marketing and distribution strategies to reach a wide audience, including children. They marketed the Nintendo brand as a toy company. The original NES gaming consoles came with a toy called R.O.B. to assist you in playing the games.

The Console Wars

Millions of gamers had grown up with the Nintendo Entertainment System (NES) and its iconic character, Mario. However, Nintendo's dominance was not to last. In the years that followed, the company faced challenges from new competitors, changing technology, and shifting consumer preferences.


Through the NES game station, Nintendo originally debuted titles like Final Fantasy, Castlevania, Metroid, and The Legend Of Zelda. But Nintendo's dominance in the video game market began to erode in the late 1980s and early 1990s, as new competitors emerged.


On 14 August 1989, SEGA, a different manufacturer of game consoles, introduced "Genesis," to the US market, a potent and intense gaming machine that quickly gained popularity. As a result, SEGA quickly established itself as a formidable foe of Nintendo, and the console war was born.


The Genesis was marketed as a more sophisticated and mature console than the NES and was able to appeal to an older demographic. Sega's aggressive marketing campaigns, which included the "Genesis does what Nintendon't" slogan, were aimed at chipping away at Nintendo's dominance.


But, while competitors like SEGA hovered on the surface, Nintendo responded to the emergence by releasing new products and making more strategic business decisions. In 1991, the company released the Super Nintendo Entertainment System (SNES), a more advanced console than the NES. The SNES featured improved graphics, sound, and processing power, and also had a wider range of games.


Nintendo also made deals with third-party developers to create exclusive games for the SNES, which helped to set it apart from its competitors. The gaming giant entered the handheld gaming market with the release of the Game Boy in 1989, which quickly became a best-seller, and cushioned most of the harm wrought by the loss of market dominance to SEGA.


Even as SEGA continued to criticize Nintendo's inferior technical specifications directly, market dominance eluded it for years. It was not until the company started implementing a part of Nintendo’s own strategy did the SEGA Genesis come to outsell the Nintendo Entertainment system sometime around 1991. The next year, SEGA controlled 65% of the home console market, surpassing Nintendo's five-year dominance.


Struggle for Survival

Despite Nintendo's efforts to stay ahead of the competition, the company began to lose market share in the mid-1990s. One of the key reasons was the emergence of the Sony PlayStation into the American market in 1995. The PlayStation was a more advanced console than the SNES and also had a wider range of games. Sony was able to take advantage of new technology, including CD-ROMs, to create games that were more sophisticated than those available on the SNES. The Sony Playstation was the first console ever to sell more than 100 million units.


The rise of computer gaming and online gaming also began to impact the video game market as consumers began to shift away from traditional consoles. The Commodore 64's introduction in 1982 contributed significantly to the shift in gaming toward personal computers at the same time. After being introduced in the same year, the Commodore 64 quickly became the de facto low-end computer, and for the following ten years, it received support for peripherals and software.


But the struggle for Nintendo truly started in the early 2000s with the release of the GameCube, which failed to compete with Sony's PlayStation 2 and Microsoft's Xbox. In 2002, Microsoft launched the Xbox Live (now known as the Xbox network) online gaming network and it was a raving success; the next year, Nintendo announced its first loss in three decades, and again in 2014 as well. The same year, Blizzard entered the Massive Multiplayer Online Games (MMOG) subscription market on PCs with the release of World of Warcraft, which was based on the Warcraft franchise.


With the release of the Nintendo Wii in 2006, which featured Wii sports and Mario Kart Wii, Nintendo also established a level of control over the home video game market; however, Nintendo's next console, the Wii U, was a commercial failure, selling only 13.5 million units compared to its predecessor, the Wii, which sold over 100 million units, damaging to an extent, some of the momentum Nintendo had acquired with the Wii. According to Bloomberg, after releasing Wii U, Nintendo's stock price hit its lowest level in more than five years.


Nintendo also faced stiff competition from mobile phones, which were becoming increasingly popular as gaming devices. One of Nintendo's first major competitors on mobile devices came from other mobile game developers, such as Supercell, King, and Rovio. These companies had created popular mobile games like Clash of Clans, Candy Crush Saga, and Angry Birds, which had already established large and loyal fan bases.


In July 2016, an obscure Californian firm named Niantic (which was a former division of Google) launched a smartphone game app in Australia. The game was an instant hit, with millions of people downloading and playing it within days of its release. Within a week, Pokemon Go had surpassed all previous app launches in size and was raking in millions of dollars per day. Fortunately, Nintendo was a strategic investor. Although Nintendo was not the developer of Pokemon Go, it owned a 32% stake in The Pokemon Company, which meant that it still benefited financially from the game's success.


Nintendo's Current Position in the Industry

Nintendo managed to make a comeback with the release of the Nintendo Switch in 2017, a hybrid console that can be played both as a home console and a portable device. The console was a huge success, selling about 122.5 million units worldwide, according to Nintendo's most recent sales report for the fourth quarter of 2022. This also made it one of the all-time best-selling systems in the world after PlayStation 2, which has sold 158 million units, and the Nintendo DS, which has sold 154.02 million.


As of January 2023, however, Nintendo had only a 0.05% console operating system market share worldwide, Xbox had a 14.77% market share, and PlayStation took the lead at 85.19% market share. The best-selling game for both the Xbox and PlayStation in the US in 2022, according to Statista, was Call of Duty: Modern Warfare II, which was released by Activision Blizzard. While Pokémon Scarlet and Violet was the top-selling on the Nintendo platform for the same period and region as well.


Nintendo has also found success with releasing new titles such as Animal Crossing: New Horizons, which became a cultural sensation during the COVID-19 pandemic.


Today, Nintendo is no longer the top major player in the market but still maintains a high market capitalization. Currently, the top five largest video game companies by market cap are Microsoft, Tencent, Sony, Activision Blizzard, and NetEase.


Largest video game companies by market cap


Meanwhile, Nintendo is still the world's oldest video game company that is still in operation and continues to be one of the largest solely video game developers in the world. The company continues to hold the top spot on the list of the biggest video game publishers in the world, accounting for 9.7% of the total income generated by the video game software publishing sector as of the time of writing.


Nintendo's success can be attributed to its focus on innovation and unique gameplay experiences and its ability to create beloved characters and franchises that have stood the test of time. Regardless of disruptions, the company has managed to tap into the nostalgia of its fans, while still appealing to a new generation of players.