The Fragility of the Blue Ocean Strategy

Nintendo was attempting to create a Blue Ocean by creating a unique gaming experience and at the same time keeping the cost of its system lower than Sony’s and Microsoft’s.

To avoid turning the Blue Ocean into a Red Ocean again, the strategy must be constantly reformulated through a dynamic and creative process.

The Allure of the Blue Ocean 

In business, "Blue Ocean" and "Red Ocean" are two very familiar concepts and strategies. Red Oceans refer to the frequently accessed market spaces where the products are well-defined, competitors are known, and competition is ‘‘bloody’’ and based on price, product quality, and service. In other words, "Red Oceans" is an old paradigm that represents all the industries in existence today.

On the contrary, Blue Oceans denotes an environment where products are not yet well-defined, competitors are not structured, and the market is relatively unknown. Companies that sail in the BlueOceans are those beating the competition by focusing on developing compelling value innovations that create uncontested market space. This is done by reconfiguring the company’s offerings to better balance customer needs with the economic costs of doing so. The outcome of this process is a new value proposition.

Blue Oceans are so attractive that many businesses are seduced. Many experts believe that, now and in the future, a successful business is not one that competes well with its competitors, but one that knows how to create new things and explore Blue Oceans. But reality is very different.

Nintendo's swings

Few analysts would have predicted just a few years ago that the Nintendo Wii would overtake the established Playstation 3 (PS3) and Xbox 360 brands as the market leader in gaming consoles. However, by the early 2000s, Nintendo was overwhelmed by competitors like Sony and Microsoft. The video game consoles of these two companies, PlayStation and Xbox, have powerful hardware, beautiful graphics, and massive game scripts. Nintendo lost its world market leadership to these two manufacturers.

Then Nintendo discovered a fact, that ordinary people, without technological skills, also want and enjoy playing video games. These people cannot afford to buy expensive machines and do not have enough skills and time to play the games of Sony and Microsoft. This is a Blue Ocean that Nintendo’s competitors have not looked at.

In November 2006, Nintendo released the Nintendo Wii game console. Nintendo’s new direction was clear from the outset: instead of offering an incremental hardware upgrade, Nintendo offered a new way to play games, one that involved gamers in a new way, which differentiated the experience from that of its competitors.

Nintendo was attempting to create a Blue Ocean by creating a unique gaming experience and at the same time keeping the cost of its system lower than Sony’s and Microsoft’s. In this way, Nintendo was trying to create ‘‘value innovation''. Part of the Blue Ocean strategy involves creating a strategy canvas that depicts the current market space and relative offering level for major attributes that companies compete on.

So it was found that Nintendo Wii customers included both women and adults over 60. In the period 2008-2010, Nintendo Wii’s market share was higher than PS3 or Xbox. Even in 2008, the market share of this business accounted for 46% of the total. This is a perfect Blue Ocean.

Risk of being turned "red"

Of course, with the success of the Nintendo Wii, two rivals, Sony Playstation and Microsoft Xbox certainly do not stand still.

In September/October 2010 Sony launched the PlayStation Move,a motion-sensing gamecontroller platform for the PlayStation 3 (PS3) game console. Based on a handheld motioncontroller wand, PlayStation Move uses the PlayStation Eye camera to track the wand's position and sensors in the wand to detect its motion.

And in November 2010, Kinect for Xbox 360, or simply Kinect (originally known by the code name Project Natal), was introduced world-wide. It is a motion-sensing input device for the Xbox360 video game console. Unlike its rivals, Microsoft’s Kinect does not use a controller. Instead, a series of sensors allow the gamer to control the action using gestures, movement, and speech.

So both Sony and Microsoft jumped into Nintendo's "easy to play" Blue Ocean. An ocean with these 3 "sharks" quickly turned red, with fierce competition like the original.

Nintendo’s response to the two competitors’ new product launches came in late 2012. In November 2012, Nintendo’s new Wii U was released. The main feature of the controller is its built-in touchscreen, which either supplements or replicates the gameplay displayed on the television screen.

The GamePad represents Nintendo’s attempt to differentiate its new console in the same way that it did with its Wii back in 2006. However, if the original Wii represented a shift away from the hardcore gaming market, the Wii U signals a movement back towards the hardcore gaming market space. The GamePad, although innovative, actually resembles a traditional controller in more ways than the original Wii motion controls. Nintendo has equipped the Wii U with features that allow it to be used as a multimedia entertainment device rather than only as a video game console. These features focus on online services, instead of physical media. This strategy signifies Nintendo's intention to look forward rather than backwards.

Until now, the sales of the new Wii U have been disappointing for Nintendo management. By the end of July 2013, the U console had sold 3.6 million units, clearly under Nintento's prediction of 5.5 million. The console is still being sold at a loss. In the world market for game consoles, the Nintendo Wii moved from first place to third place within a year of its introduction. Nintendo sadly watched as its Blue Ocean turned red and returned to its old position.