It proceeded to establish a close relationship with the different game developers with it as the dominant partner. Nintendo controlled the operating system. issued licenses to game developers and producers of games software, and. controlled the manufacture and distribution of game cartridges and imposed royalty.
The result was that it raked in most of the potential profit of the whole system although consumer value originally lay in the software (Grant 1104-1105).
With the recent release of Nintendo’s latest video game console, the Wii, it was able to maintain its contending position in the industry through the use of reverse positioning strategy, taking advantage, in effect of the rush to outdo competitors through the use of newest state-of-the-art micro-components. This strategy took into consideration the disruptive forces brought about by new technology that changed the video game console industry value driver of profitability: as newer, cutting-edge game console microchips were invented, older ones became passé and their prices rapidly dropped. Nintendo took an opposing approach by using instead older chips to minimize production costs. The result allows the company to sell at a much lower price per unit than its main competitors and higher profitability return for each of the Wii sold. On the other hand, its competitors Sony (for PS3) and Microsoft (for Xbox 360) which tried to outdo each other by using state-of-the-art chips both lost money (Afuah 215). The success of the Wii launch is underpinned by the bargaining power of buyers that is naturally inclined to lower-priced products which also offer competitive quality.
With the launch of the Microsoft Xbox 360 in late 2005, the Nintendo Wii in late 2006 and the Sony PS3 in early 2007, it is evident that a perceptible change in the competitive dynamics of the industry is taking shape.