Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How Nintendo Pivoted From Toys to Video Games to Hybrid
Transcript
- Lucas: So Nintendo. The company that gave us Mario, Zelda, and a console you can take on the train. But what most people don't realize is that Nintendo has been reinventing itself for over a hundred and thirty years — starting out making playing cards in 1889. Luna: Hanafuda cards, yeah. The flower cards. That's a long way from the Switch. Lucas: Exactly. And the key thing about Nintendo's story is that they've gone through at least four major pivots — from cards to toys, toys to arcade games, arcade to home consoles, and then home consoles to hybrid handheld. Each time, they were on the brink or facing massive disruption. Luna: So let's go back to the early days. How did a playing card company decide to get into electronics? Lucas: Right. So through the 1960s, Nintendo's card business was stagnating. The founder's grandson, Hiroshi Yamauchi, took over in 1949 and he realized that cards were a limited market. He started experimenting. They tried a love hotel, instant rice, even a taxi company. All failures. But in 1966, one of their employees, Gunpei Yokoi, designed a simple extending arm toy called the Ultra Hand, and it sold over a million units. Luna: And that's the same Gunpei Yokoi who later created the Game Boy. Lucas: Same guy. So that success convinced Yamauchi to pivot into toys. They hired Yokoi to lead a new R&D division. And they started making electronic toys — like the Beam Gun, which used light sensors. That led them into arcade games in the late 70s, with titles like Radar Scope and eventually Donkey Kong in 1981. Luna: Which is where Mario first appeared, as Jumpman. Lucas: Right. And then came the home console pivot. The Famicom, or NES, launched in Japan in 1983. But that same year, the North American video game market collapsed. The crash of 1983. Atari buried millions of unsold cartridges in a New Mexico landfill. Retailers lost trust in video games. Luna: So how did Nintendo break through that? I mean, they were a Japanese toy company trying to sell a console in a market that had just burned itself. Lucas: They did two things. First, they designed the NES to look like a VCR, not a game console, to blend into living rooms. Second, they introduced the R.O.B. — the Robotic Operating Buddy — a plastic robot that interacted with games. It was a gimmick, but it made the system look like a toy, not a game machine. And most importantly, they imposed strict quality control: they required developers to license games, and they put a lockout chip in the system so only approved cartridges would work. Luna: That was huge. It prevented the flood of shovelware that killed Atari. Lucas: Exactly. That pivot — from arcade to a curated home console ecosystem — saved the entire industry. By 1990, one in three American households had an NES. Luna: But then Sony and Sega came in with cd roms, better graphics. Nintendo stuck with cartridges for the N64. Was that a mistake? Lucas: It was a strategic choice. Nintendo believed cartridges had faster load times and were harder to pirate. But they lost third-party developers who wanted the lower cost and higher capacity of CDs. The N64 still sold well — over 32 million units — but Sony's PlayStation sold over 100 million. Nintendo was no longer the market leader. Luna: So how did they respond? Because they didn't try to outdo Sony on horsepower. Lucas: They didn't. They went the other direction. In 2004, they launched the Nintendo DS, a dual-screen handheld with a touchscreen — one screen was resistive, you could use a stylus. And in 2006, the Wii. The Wii had graphics comparable to the previous generation Xbox and PlayStation, but it had motion controls. That was the big bet. Luna: And it paid off in a huge way. The Wii sold over 101 million units. Lucas: It brought in seniors, families, people who never considered themselves gamers. Nintendo called this 'blue ocean strategy' — instead of fighting for hardcore gamers, they created a new market. And the DS sold 154 million units. Those two devices made Nintendo absurdly profitable. Luna: But then came the Wii U. Which was a flop. Only 13 million units sold. Lucas: That's the key failure that led to the next pivot. The Wii U had a tablet-like controller with a screen, but the messaging was terrible. People thought it was just an add-on for the Wii, not a new console. And it was underpowered compared to the PlayStation 4 and Xbox One. Nintendo lost third-party support again. Iwata, the president at the time, took a 50 percent pay cut to apologize to investors. Luna: So that's when they went back to the drawing board. And came up with the Switch. Lucas: Yeah. The Switch launched in March 2017. It's a hybrid — you can dock it to play on a TV, or undock it and play on the go. It uses a custom NVIDIA Tegra chip, which is basically tablet hardware. But the genius wasn't the technology; it was the concept. Nintendo unified their home console and handheld divisions into one platform. Luna: Which made development easier. One game, two modes. Lucas: Exactly. And it's now sold over 140 million units, putting it in the top three best-selling consoles of all time, behind the PlayStation 2 and Nintendo's own DS. The Switch essentially saved Nintendo after the Wii U disaster. And it's a perfect example of what Nintendo calls 'lateral thinking with withered technology.' Luna: That's a key concept. Explain that. Lucas: So Gunpei Yokoi coined that phrase. It means taking mature, cheap, well-understood technology and using it in a clever way, rather than chasing bleeding-edge specs. The Game Boy used a low-resolution black and green screen and a slow processor, but it had great battery life and a killer game — Tetris. The Wii used standard components but added motion control. The Switch uses off-the-shelf tablet hardware but in a form factor nobody had executed well before. Luna: So it's about design and experience, not raw power. Lucas: Exactly. And that philosophy is why Nintendo survives while other hardware makers struggle. They don't try to compete on graphics or processing power. They compete on fun and convenience. And that has allowed them to pivot over and over. Luna: But is that sustainable? I mean, the Switch is getting old. It's been out since 2017. And there are rumors of a Switch 2, but they haven't announced anything. Meanwhile, the Steam Deck and other handheld PCs are catching up. Lucas: That's the big open question. Nintendo's next pivot has to happen soon. They've been riding the Switch wave for almost a decade. But if there's one thing their history shows, it's that they're willing to cannibalize their own success. They killed the Game Boy line when the DS launched. They stopped making the Wii when the Wii U came out. They'll do it again. Luna: I hope so. Because if they try to just extend the Switch with a pro model, they might end up like the Wii U — confusing the market. Lucas: Right. And that's the lesson for any business: your biggest success can become your biggest trap if you don't know when to pivot. Nintendo almost fell into that trap with the Wii U because they thought the Wii's magic would carry over. But they learned from it. Luna: And they also had the cash reserves to survive a failure like that. That's another part of the story. Lucas: Absolutely. Nintendo has always kept a huge war chest. They could afford to fail with the Wii U because the DS and Wii had been so profitable. That's a strategic choice: keep costs low, maintain margins, and don't overextend. Luna: It's a good reminder that pivoting isn't just about being creative — it's about having the financial discipline to make mistakes. Lucas: Exactly. And if today's conversation has been useful to you — maybe it shifts how you think about your own company's strategy — honestly, if it was worth a coffee to you, that's the link. Buy me a coffee dot com slash fexingo. No pressure, just a simple way to keep these episodes ad-free and independent. Luna: Yeah, it's a small gesture that goes a long way. And it helps us keep doing deep dives like this one. Lucas: So back to Nintendo's future. The next pivot is likely to be about software and services. They've been experimenting with mobile games, and they opened a theme park at Universal Studios. But the core hardware challenge remains. Luna: Do you think they'll ever just become a software company? Like, put Mario on other platforms? Lucas: I doubt it. Their whole identity is built on integrated hardware and software. They control the ecosystem. But they have started to license their characters more — the Super Mario movie was a huge hit, and they're expanding into theme parks. So maybe the pivot is to become an entertainment brand, not just a game company. Luna: That would be a shift. But they've done it before — from cards to toys to games. Why not to movies and parks? Lucas: Exactly. And that's what makes Nintendo such a fascinating case study. They've been pivoting for 130 years. Every time the market shifts, they find a new angle. And they do it without abandoning who they are: a company that makes fun, accessible experiences. Luna: Well, we'll be watching for the next move. Thanks, Lucas. Lucas: Thanks, Luna. And thanks to everyone listening.