Disruptive Innovation via Old Technology: Nintendo’s Path
With computing power increasing exponentially in past decades more or less according to Moore’s law, there have been a lot of computing systems that thrived in the market without donning the latest, most powerful individual components. We’re talking about standardized systems here like gaming consoles or, more recently, smartphones and tablets, and not those easily upgradable by consumers via new components.
Out of all such hardware concoctions, when compared to other similar products in the market, Nintendo’s consoles more often than not feature out-of-date components the day they’re launched. How is it possible to stay competitive with this strategy? Also, why aren’t competitors copying this behavior?
In order to provide some context, let’s explore some Nintendo folklore to observe the company’s journey since the beginning and how different events have shaped current cultural values in developing both video games and hardware.
Most people are bewildered at hearing the Japanese company was founded in 1889, and rightfully so. In today’s context when Nintendo is making hardware that’s electronic in nature and software in the form of video games it would be indeed impossible to conceive starting its activity in the 19th century, but the company only pivoted in this new direction after consumers themselves started moving away from the company’s original product, hanafuda playing cards.
Nintendo —essentially an up-scale printing center at this point — was facing an existential crisis in the 1950s when people were turning away from cards and investing most of their gaming budget in the new gaming/gambling pachinko machines¹. The situation was made worse by an organizational change at the top that made the founder’s great-grandson, who was only 22 at the time, the new CEO of the company. The first two attempts to diversify the company’s products were a venture into food products and another in the creation of a taxi company. Both failed and resulted in significant debt for the company.
After these failures the CEO decided to hire new university graduates in order to help him infuse the old company with some innovation but the implementation of this plan proved harder in reality than on paper, since the relatively small company had trouble convincing this demographic to move/remain in a small city and work then with Tokyo-based companies being magnets for all the good talent. The situation was kind of resolved in 1965 when Gunpei Yokoi, by his own account a mediocre electronics graduate from Nintendo’s hometown of Kyoto, decided to take on a job at the company as a last resort.
The Ultra Hand, Nintendo’s first ever toy that sold 1.2 million devices and saved the company from bankruptcy, was born out of Yokoi’s acute boredom on his main job of taking care of printing machines, a development that led the company to create an R&D department with him at the helm. Because the pace of innovation in the realm of electronics was moving at breakneck speeds in the late 1960s and due to the high level of performance incumbent companies already had in the field, Yokoi decided the best way to go at it was to use what he called ‘lateral thinking with withered technology’, meaning the use of cheap, simplistic technology in alternative, creative ways. This mentality led him to participate in the creation of games like Donkey Kong, Mario, Kid Icarus or Metroid and also enabled him to create multiple hardware devices for Nintendo, one of which, along with it’s updated color-screen version, is the 3rd best selling gaming console in history with sales of 118 million devices distributed worldwide.
The Gameboy handheld video game console launched in 1989 and had a custom-built processor designed as a hybrid of two top of the line processors from 1975 and a black and white screen at a time when all other consoles had color displays. While the electronics themselves were old, the device offered a package that many craved: an almost indestructible device that was cheap to buy, easy to fit in pants pockets that enabled you to play anywhere due to its battery power. Come to think of it, this sounds like the iPhone and the Nokia 3310 had a kid that only played games. The old technology also meant that developers already had an accurate understanding of the architecture and its limitations, enabling third parties to quickly partner with Nintendo’s R&D1 Lab in building new games for the device’s launch.
Whatever new device Nintendo came up with after that point it had the same characteristics: old hardware used differently. It might as well be made into the official slogan of the company. The Nintendo DS had two screens with a resolution of 256x192 pixels and 256KB of storage compared to Sony’s PSP with 480x272 pixels and 16GB of storage. Nintendo won the fight by selling 154 million units compared to the PSP’s 80 million by using it’s old bag of tricks to address non-gamers: low prices, ease of use, sturdiness and later cheap 3D screens. The same thing happened with the Nintendo Switch that launched with a screen resolution four times smaller than some smartphones at the time and even less processing power but provided endless fun by being a hybrid between a portable and a living room device .
There are countless other examples of companies successfully using old tech in new ways. Apple’s beginnings were not much different from Nintendo’s, the company’s founders took off-the-shelf components and assembled them into one unit they called a personal computer and they were off to the races. Similarly Google used storage units with a high rate of failure in order to lower purchase costs when buying large volumes but developed redundancy systems that would make the product look top-notch in the eyes of consumers.
In all of these examples we can see one comprehensive reason why all these companies prevailed in their own market both in front of incumbent companies and subsequent attacks from outsiders post-launch. Each of them offered a user experience that is superior to any of the competitors’ solutions and further disrupted the market with products that brought functionality the masses craved without even knowing. It’s the quality of the overall experience, the more-than-the-sum-of-its-parts quality, that created the so-called Apple Fanboys and Nintendo’s diehard group of fans that are willing to wait more for a product launch and then pay a premium in order to get a hold of a certain device when it eventually releases when compared to the user bases of other companies.
Many companies that developed products based on this ‘do more with less’ strategy ended up disrupting their respective markets and it’s easy to see why when looking at disruption theory and lateral thinking with withered technology side by side. Disruptive technology is usually simpler in design, often using existing components, cheaper in cost with lower profits and small margins. This naturally leads the technology to be addressed to, and then used by, a group of users who are considered outsiders in the traditional market at first and then expand to conquer the rest of the space once features are added or improved upon later.
The overwhelming majority of situations in which companies innovated by employing the lateral thinking with withered technology ethos were circumstances of low capital, circumstances that forced these entities to go down this road instead of choosing it as the best option. In today’s environment, VCs in developed countries like the US are willing to invest billions in unproven ideas as long as the founder’s pitch is good enough, effectively limiting the development of this kind of innovation to territories where the environment is similar to that of the US in the ’80s. The scarcely available capital in those markets means investors make fewer bets, so potentially disruptive companies will have to fight harder for those investments.
An often-overlooked aspect of this technique for creating innovative designs is the amount of freedom that employees or members of purpose-built R&D teams enjoyed back in the day and is less and less common in today’s business environment. Most efforts today are either a facade with the purpose of ticking a box that makes the company looks good to the outside world while individuals are strictly guided towards temporary objectives of the company at the moment like increasing profitability or some other metric that would make the stock go up. A combination of the right mentality, competent talent and freedom are the minimum criteria in the creation of any product that hangs on creativity to be driven home, missing just one of them will transform the effort into a gamble with worse odds than a roulette game.
¹Pachinko machines were also the physical devices that inspired developers to create the GACHA gambling system in games.
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