Thriving by not winning

The mantra of the new economy has been “be first” — first-mover advantages, be first in market share, be first-to-market. But that isn’t how the I-Cubed Economy necessarily works. Servicing customer needs, rather than beating the brains out of the competition, is the real key to success — as James Surowiecki points out in his latest New Yorker column, In Praise of Third Place:

Fifteen years ago, the video-game industry was ruled by one player, Nintendo. The company had machines in a third of American homes, and it was Japan’s most profitable electronics company. The title of a 1993 book summed up the situation: “Game Over: How Nintendo Conquered the World.” Then the Sony PlayStation arrived, and everything changed. Today, Sony is the dominant force, and its chief rival is not Nintendo but Microsoft, which makes the Xbox. Two weeks ago, the début of Sony’s PlayStation 3 was greeted by crowds of hysterical consumers anxious to get their hands on the new console, billed as the most powerful gaming machine ever. When Nintendo’s new console, the oddly named Wii, appeared, a few days later, there were excellent reviews and expectations of good sales, but no more talk about world conquest. If Sony and Microsoft are the major-party nominees, Nintendo is more like a cool third-party candidate.

As Sony and Microsoft battle over who will own the home entertainment market (“control the living room”), Nintendo took a different tack.

Nintendo has dropped out of this race. The Wii has few bells and whistles and much less processing power than its “competitors,” and it features less impressive graphics. It’s really well suited for just one thing: playing games. But this turns out to be an asset. The Wii’s simplicity means that Nintendo can make money selling consoles, while Sony is reportedly losing more than two hundred and forty dollars on each PlayStation 3 it sells—even though they are selling for almost six hundred dollars. Similarly, because Nintendo is not trying to rule the entire industry, it’s been able to focus on its core competence, which is making entertaining, innovative games. For instance, the Wii features a motion sensor that allows you to, say, hit a tennis ball onscreen by swinging the controller like a tennis racquet. Nintendo’s handheld device, the DS, became astoundingly popular because of simple but brilliant games like Nintendogs, in which users raise virtual puppies. And because Nintendo sells many more of its own games than Sony and Microsoft do, its profit margins are higher, too. Arguably, Nintendo has thrived not despite its fall from the top but because of it.

Strategy is all about thinking through what you are doing – not necessarily following the latest management fad. The same is true for national or local economic strategies. I would venture to say that there are a lot of Nintendo’s out there – national and regions how are doing very well by following an older management fad of “sticking to your knitting.” That is not to say that they aren’t innovative. Today’s knitting is nothing like yesterday’s. But building on your strengths and shoring up your weaknesses has always a good strategy. And while others fight over who has a larger market share, making sure that you are providing value to your customer will always be a winning strategy.

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