Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How Nintendo Pivoted From Card Games to Video Game Empire
Transcript
- Lucas: So Nintendo was founded in 1889. In Kyoto. As a hanafuda playing card company. That's not a cute trivia fact — it's the key to understanding how they've survived a hundred and thirty-seven years without being swallowed by Sony, Microsoft, or the smartphone. Luna: A card company that now makes the Switch. That's a pivot and a half. How did they even get from paper to pixels? Lucas: Slowly. And with a lot of near-death experiences. The first big one was the 1960s. The founder's grandson, Hiroshi Yamauchi, realized the card business was dying. Japan was modernizing, people weren't playing hanafuda anymore. So he pivoted into toys — love hotels, taxi companies, instant rice. That part is less known. Luna: Wait — Nintendo ran love hotels? Lucas: For a brief period. Yamauchi was throwing things at the wall. The toy pivot worked because of one hire: a janitor turned designer named Gunpei Yokoi. He created the Ultra Hand — a plastic extending arm toy — and it sold over a million units. That gave Nintendo the confidence to keep making physical playthings. Luna: So the pivot wasn't a single moment. It was a series of bets, most of which didn't work, but a few that paid off big. Lucas: Exactly. And that pattern repeats. In the late 70s, arcade games were taking off. Nintendo jumped in. They made a few flops, then hired a young designer named Shigeru Miyamoto. He created Donkey Kong in 1981. That game saved Nintendo's arcade division and introduced Mario. Luna: But the real pivot came a few years later, right? The home console market. Lucas: Right. 1983. The video game crash in North America. Atari was dumping cartridges in a landfill. Everyone thought home gaming was dead. Nintendo released the Famicom in Japan anyway, then the NES in the US in 1985. They bet on tight quality control — the Nintendo Seal of Quality — and it worked. By 1990, they had 90 percent of the home console market. Luna: And then the 90s happened. Sony entered, then Microsoft. Nintendo lost market share but stayed profitable. How? Lucas: By refusing to compete on hardware power. They focused on software — Mario, Zelda, Pokémon — and on novel hardware. The Game Boy, the DS, the Wii. The Wii was a huge pivot. In 2006, Sony and Microsoft were chasing high-def graphics. Nintendo said, 'We're going to make a low-power console with motion controls that your grandmother can play.' It sold over 100 million units. Luna: But then came the Wii U. That was a failure. Lucas: Massive failure. 13 million units sold. By comparison, the Wii sold 101 million. The Wii U was confusing — people thought it was an add-on to the Wii, not a new console. Nintendo lost billions in market value. By 2014, analysts were writing obituaries. They said Nintendo should just make mobile games and give up on hardware. Luna: And that's where the pivot to the Switch happened. I remember the announcement in 2016. Everyone was skeptical. Lucas: The Switch was a bet that people wanted a hybrid — a console you could play at home on your TV or take on the train. It used a custom NVIDIA Tegra chip, not cutting-edge, but enough. And it launched with Breath of the Wild. That combination — a good game and a clear value proposition — sold 122 million units as of last year. That's more than the Wii. Luna: So the pivot was about doubling down on what Nintendo does best: integrated hardware and software. They didn't chase mobile at first, even though that was the trend. Lucas: Right. They finally released mobile games in 2016 — Super Mario Run, Fire Emblem Heroes — but they were late and they didn't cannibalize their console business. The strategy was: mobile as marketing for the Switch, not as a replacement. And it worked. Nintendo's market cap went from about $40 billion in 2017 to over $80 billion by 2022. Luna: It's interesting that they're willing to fail. The Virtual Boy, the Wii U, the GameCube — they had flops, but they didn't abandon hardware. Lucas: That's the throughline. Nintendo treats hardware like a platform for their software. They're not trying to be the biggest — they're trying to be the most Nintendo. And when they forget that, they fail. When they remember, they succeed. The Switch 2 is reportedly coming next year. If they keep that philosophy, they'll be fine. Luna: So what's the lesson for other businesses? Is it 'stay true to your core'? Lucas: Partly. But more specifically: know what your core actually is. Nintendo's core isn't cards or even video games. It's 'creating unique interactive experiences that make people smile.' That's a quote from a former president. That mission lets them pivot into toys, arcades, consoles, mobile, theme parks — without losing identity. Luna: A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, absolutely. If these conversations have moved your work forward in some small way, that link is there. No pressure. Luna: And it keeps the show ad-free, which is nice. So back to Nintendo — one more thing I find remarkable: they've never done a mass layoff. During the Wii U crisis, they cut executive pay but kept everyone employed. Lucas: That's true. Japanese corporate culture plays a role, but it's also strategic. They value institutional knowledge. The people who designed the N64 controller worked on the Switch controller. That continuity is rare in tech. Luna: So what's the next pivot? AI? VR? Lucas: Probably not VR. They tried the Virtual Boy and it bombed. I think they'll stay with hybrid. Maybe they'll integrate AI in game design, like smarter NPCs. But the big pivot might be into entertainment more broadly — the Super Mario movie made over a billion dollars. Nintendo's characters are assets as valuable as their hardware. Luna: So the pivot isn't over. It's ongoing. Lucas: Exactly. And that's the lesson for any business: pivoting is not a one-time event. It's a muscle. Nintendo has been exercising that muscle for 137 years. That's why they're still here. Luna: And still making people smile. Lucas: And still making people smile.