This slide shows the entire encroachment framework
with the six different types of new products.
But for now just notice the two axis.
On the one we have the core attribute performance which
could be lower or higher than the original product.
And on the y axis we have
the new attribute performance which could be weak, moderate or strong.
Let's begin with a brief history of the video game industry.
In 1985, Nintendo, until that point, was just making game cards. For example,
Disney, entered the video game scene.
Anyone who was alive in the 80s,
would probably remember the iconic Super Mario Bros.
The controller at this point was just a little brick which only had 5 buttons.
Ten years later, the video game industry has moved to 3D gaming and as you can see here,
the controller is somewhat more complex.
Core gamers, of course, love this because this
allowed them to have more control over the games,
but casual gamers were turned off by this.
Another decade later, Nintendo's graphics have not
improved that significantly but they did offer something new.
Instead of controlling the game with the 17 button controller,
Nintendo offered the Wii mote that was motion sensitive.
In the same generation,
Sony and Microsoft were going high end,
meaning, they offered high definition graphics as well as 7.1 surround sound,
neither of which Nintendo offered on their Wii.
So clearly, Nintendo chose the fringe market low end approach by diminishing
the core capability of the gaming console but offering something new for the consumers.
Now, before any company brings out a new product,
it's very important to realize which type of new product it is.
Let's consider for a moment what they would have offered,
if they had chosen to go for the immediate high end.
Basically, they would have ended up with a console very,
very similar to the Microsoft Xbox 360,
which offered HD graphics and a 7.1 surround sound.
That would have meant that Nintendo would have had to compete with Microsoft,
so that's probably not a good idea.
How about offering a new attribute high end product?
In that case, they would have had to compete directly with Sony's PlayStation 3,
which also offered the HD graphics but included a Blu-ray player as well.
Again, not a very good idea.
How about an immediate low end type?
Basically, a console very similar to the Wii but without the motion sensitive control.
Well basically, customers would then look at this and say,
why wouldn't I just buy the current PlayStation 2 or the original Xbox that offered me
the same core attribute performances as the Wii and have a similar controller as well?
In other words, if Nintendo had chosen this route,
it probably wouldn't have convinced many customers to buy their new console.
So, how about a new market high end type product.
This means that it has to offer a higher core capability and something radically new.
For example, something like the Wii U.
This is Nintendo's second generation Wii which does offer
HD graphics, and in addition, has a tablet as a controller.
If they had offered this new product back in 2006,
this would have been a new market high end type,
but this probably was very hard for them to do at that time.
So, how about a detached market low end?
Basically taking Wii idea to the extreme.
Well they actually tried that with the Virtual Boy back in 1995.
As you can see here, the Virtual Boy was some kind of helmet.
It only offered two colors in the gameplay, namely
red and black, but you can look around and the screen would move with your vision.
However, back in 1995,
this turned out to be a huge flop and only sold about 10,000 units in the US.
As such, they probably weren't too keen on trying this approach again.
Looking at the entire framework now,
it seems very reasonable that they chose for this approach,
the fringe market low end.
Thank you very much for watching.