E-Commerce Plan Nintendo\'s Global Leadership

e-Commerce Plan

Nintendo's global leadership in the development, marketing, promotion, sales and service of their best-selling gaming modules, gaming software and interactive games has also created exceptional growth for third party games, development kits and accessories. The intent of this e-commerce venture plan is to create an e-commerce business that offers Nintendo gaming modules, gaming software and interactive games both from Nintendo and from third parties for sale globally. The e-commerce site will also have an innovative "build your own game" feature where customers can get online, design their own game and download it to use on the Wii, DS or DSi. This approach to mass customization of video games to customers' requirements will require that the 3rd party developers of Wii gaming modules, gaming software and interactive games all be coordinated to a common development standard. This development standard will ensure the integration of gaming segments and allow for customers to define multiple scenarios and gaming strategies. The coordination of development partners and suppliers is critical for the long-term scalability of any mass customization strategy (Jitpaiboon, Dangols, Walters, 2009). While Nintendo concentrates on its core areas of inventing, manufacturing and marketing hardware and software for its video game systems there are many users' preferences in game design and topics not addressed. Having a website that offers Nintendo Wii, DS and DSi custom configurable games in addition to existing gaming modules, gaming software and interactive games is the intent of this e-commerce venture plan.

Company Description

Differentiating away from being purely an online retailer reselling Nintendo gaming modules, gaming software and interactive games and offering customizable games is the unique value proposition of this new venture e-commerce plan. In order to get an initial revenue stream generated, Nintendo-branded gaming modules, gaming software and interactive games will be offered globally with the added benefit of overnight shipping and exceptional service. Differentiating on the aspect of customer service is what gave Zappos.com a unique and highly profitable brand as a result (Chafkin, 2009). The same approach to exceptional service will be included in the business model of this e-commerce venture plan and will be supported with automated systems to better manage the more routine tasks. The proposed new venture e-commerce plan will first define ordering and shipping arrangements with Nintendo so that orders can be dropped shipped directly to customers from their locations. In conjunction with this strategy, the company will also create a create-your-own-game developers' kit and distribute it to the global Nintendo development base. Developers will be encouraged to create modules with royalties for each module purchased over the website, and also for the quality level of the module itself. A developer could earn up to $1,000 per module for exceptionally-produced AJAX-based modules, and up to $200,000 or more a year if the module becomes the basis of a popular game. The website's games and its unique value proposition of being able to produce a "build your own game" or "write your own ending" type of software will be extensively promoted through social networks and microsites created for top-selling titles. In this way the start-up will focus on creating a groundswell of interest over the Web through social media (Bernoff, Li, 2008) followed by viral marketing campaigns aimed at promoting those interactive games that could be global best-sellers. This e-commerce venture will also rely on Web 2.0-based design principles as well (O'Reilly, 2006) ensuring that development community supporting the customized games have the opportunity to interact with and learn from each other. The underlying strength of the e-commerce venture will be its ability to create a wide variety of games quickly based on the developer community relied on. The speed of development of the 3rd party gaming modules, gaming software and interactive games compatible with the Nintendo platforms will further differentiate this e-commerce venture from others as well. Pricing for access to the website will be subscription-based for a minimum period of 12 months. The reason for relying on a subscription-based model is two-fold. First, subscription-based business models tend to generate higher levels of repurchase rates and loyalty, thereby ensuring a higher recurring revenue stream. Second, this approach will ensure customers have the opportunity to experience the entire range of games as they are releases over time. Both of these aspects of a subscription model will help this new e-commerce venture be able to gain customers, revenue and be able to invest in their future growth. Pricing will also have a significant effect on how quickly developers are paid loyalties which will in turn dictate how many new developers begin working with the company. Pricing is a critically important aspect to the business strategy as a result of all these factors.

Industry Analysis

Of the many types of games produced in 2008, the most popular continued to be action-adventure, sports and sports racing applications. Table 1, Comparing Console and PC Game Sales, 2008 provides percentage share of console games sold by category. What is useful from this data is that role-playing games have significantly smaller percentages of total sales which mean there is greater opportunity to customize them over time. In planning this new e-commerce venture the core new business development concepts of Blue Ocean Strategies (Kim, Mauborgne, 2004) need to also be kept in mind.

Table 1: Comparing Console and PC Games Sales, 2008

Genre

Percentage

Share of Console Games

Genre

Percentage

Share of PC Games

Action

27.5

Strategy

35.4

Sports

17.0

Role Playing

13.9

Racing

10.8

Family Entertainment

12.7

Shooters

10.6

Shooters

10.9

Role-Playing

9.5

Adventure

5.7

Family Entertainment

9.3

Children's Entertainment

5.7

Fighting

4.6

Sports Games

3.5

Adventure

3.4

Action

3.4

Strategy

2.7

Other Games

2.8

Other Games

2.0

Flight

2.5

Children's Entertainment

1.6

Racing

2.4

Arcade

0.9

Arcade

1.1

Flight

0.9

Fighting

N/a

Source: (Hammill, 2007) (Nintendo Investor Relations, 2009)

In assessing the target market growth, the consensus estimate of the global video game and console market however is flat at 6.1% growth from 2008 into 2009. Based on an analysis of Nintendo's financial statements and annual reports the following forecast revenue growth assumptions have been produced.

Table 2: Forecast Revenue Growth Assumptions, Nintendo Corporation, 2008-2013

Forecast real revenue growth %

2008

2009

2010

2011

2012

2013

as published July 2008 (%)

9.5

12.5

7.9

6.6

13.5

10.6

New Revised Forecast (%)

9.5

6.1

8.8

12.5

11.1

10.5

Source: Nintendo Investor Relations (2009)

Nintendo has attracted significant new competitors including Microsoft and Sony, both of which are seeking to create their own console-based businesses in this industry. Table 3, Worldwide Game Console Sales by year, 2000 -- 2008, illustrate how this industry continues to attract competitors and how rapid Nintendo's growth has been as a gaming platform.

Table 3: Worldwide Game Console Sales by Year, 2000 -- 2008 (Shipments in Millions)

Figure 1, presented by Mr. Saturo Iwata, CEO of Nintendo shows the significant competitive growth of the Wii from both a software sales growth relative to competitors as well.

Figure 1: U.S. Software Market 2008

Source: Nintendo Investor Relations (2009)

For the proposed e-commerce venture the most critical factors are first the successful launch of the business, specifically its unique value proposition of supporting "build your own" games and a subscription-based pricing model. Second, the execution of the marketing strategies for the e-commerce venture need to also be well defined, well-financed and well-executed for the online business to rise above the noise level of millions of others today. This will require intensive use of online marketing, Web 2.0 technologies (O'Reilly, 2005) and social networking (Bernoff, Li, 2008).

Market Analysis

Despite a global recession significantly slowing down consumer spending, Nintendo continues to project overall growth throughout 2009 and into 2010. Table 4, Nintendo Assessment of Global Market Conditions for Video Games, reflects how severe Nintendo's management sees the downturn in the near-term and the growth prospects for the future. This is invaluable insight in planning the e-commerce venture as it provides a glimpse into how to sequence spending on new "create your own game" spending programs and also when to ramp up or slow down merchandising spending.

Table 4: Nintendo Assessment of Global Market Conditions for Video Games

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

Quarterly Revenue $m

12809.8

10025.7

10385.4

15061.0

Real Revenue Growth

-20.7

3.5

-0.4

33.6

-25.9

5.6

3.5

45.0

Source: Nintendo Investor Relations (2009)

The combination of Tale 4 and Figure 2, Analysis of Games, Consoles and Accessory Sales, 2008 shows the dominance of games in the structure of the industry to date and for the foreseeable future. Clearly games dominate this industry from sales and profit perspective.

Figure 2: Analysis of Games, Console and Accessory Sales, 2008

Product/Services

Share

Games/Software

67.6%

Consoles

18.0%

Accessories

7.8%

Online Subscriptions

6.6%

Source: Nintendo Investor Relations (2009)

In January, 2009 Nintendo held a global shareholder's meeting and presented the two slides shown in Figure 3 and Figure 4 respectively. Taken together they show exceptional growth of the Wii platform, further underscoring the growth potential of a "create your own games" e-commerce venture.

Figure 3: U.S. Home Console Hardware Market Figure 4: Home Console Hardware Sales in Europe

Source: Nintendo Investor Relations (2009)

Clearly the Wii was able to gain an exceptionally large market share quickly after being launched. This was accomplished in the midst of a global recession as well

Market Demographics and Needs

For many who believe the computer gaming market is one that is composed of teenagers, their stereotypes of gamers is quite off the mark. Figure 5, Computer Gaming Demographics, 2007, illustrates the demographics of the U.S. computer gaming market which is comparable to other western nations. Nearly 60% of the total market is comprised of men who are 45 years of age or older. Notice also that women, age 18 to 45 are also nearly one out of every three gamers. Nintendo has created cross-over games which have been very successful in addressing these needs of these demographic groups. The development of "build your own game" strategies will also need to take this into account.

Figure 5: Global Computer Gaming Demographics, 2007

Market Segment

Share

Males 18-45

37.0%

Females 18-45

28.0%

Males

Females

Males >45

6.0%

Females >45

2.0%

Source: Entertainment Software Association, (Hammill, 2007)

Marketing Plan

The primary focus of the marketing plan will be on using Web 2.0 technologies (O'Reilly, 2006) and social networking (Bernoff, Li, 2008). A representative same of Web 2.0 applications is shown in Appendix a. The marketing plan's messaging will focus on giving customers the flexibility of creating any game they choose, and even customizing it so there are unpredictable outcomes over time. The reliance on a highly collaborative development base will also make this successful. The heavy use of Search Engine Optimization (SEO) will also be used to promote the gaming site as well. The initial products sold will be branded from Nintendo and over time the breadth of customizable games will continue to grow on the site. The use of these online methods in addition to events will form the foundation of the marketing plan.

Company Structure and Management

The structure of the company will be more hierarchical, with functional department managers reporting to the president and CEO. Accounting and Finance, Engineering, it, Marketing, Sales and Service will all be direct reports to the CEO. There will also be a focus on smaller, more collaborative teams over extensive organizational structures. This will ensure the organization is more agile, les encumbered by a structure it cannot work in.

Operation Plan

The operation plan is fairly straightforward as the series of applications that will run the proposed e-commerce venture will be hosted on Amazon Web Services (AWS). AWS is exceptional in its reliability and maintainability of systems. This will be the first phase of the operational plan. The second phase is to create a series of game developer's kits and a game development community which will serve to support the development of individual game modules. The operational plan for this will include staffing up specific development engineers and support staff which will be able to quickly guide developers to create individualized modules. The third aspect of the operational plan will be the development and continual refinement of the subscription pricing and annuity revenue model. Fourth is the actual launch of the company online and its promotion. Fifth is the continual monitoring of its progress through the use of analytics.

Product Design and Development Plan

The product design and development plan centers primarily on the development of strong relationships with developers throughout the Nintendo community. There is also the need to create a continual stream of updates to the game development kits so that successively greater features can be included. Lastly the product design and development plan must include the ability to interlink modules and suggest an optimal game design. This approach to mass customization puts the customer at the center of designing their own game, and there will be recommendations on how to best optimize performance by interest area. A guided selling application will be used to assist customers in defining which specific game type they want to produce and download.

Financial Projections

Sources and Uses Financial Analysis

2010

2011

39172

Income before income taxes

2,012

433,775

289,601

Depreciation & amortization

8,102

7,363

5,968

Increase (decrease) in reserve for doubtful accounts

2,149

Increase (decrease) in reserve for retirement benefits

5,960

1,089

Interest & dividend received

-30,430

-44,585

-34,510

Interest expenses

1

0

0

Foreign exchange loss (gain)

98,557

66,389

-21,375

Loss (gain) on sale of investment securities

-82

-37

-891

Loss (gain) on devaluation of investments securities

10,914

Investment loss (gain) on equity method