in The New Yorker about Nintendo, number three behind Sony and Microsoft in video games, but highly profitable.
You might expect, then, that Nintendo would be struggling to stay afloat. After all, the prevailing wisdom is that companies need to be market leaders, or face disaster.
This approach was famously institutionalized by Jack Welch, who, when he took over as C.E.O.
of G.E., laid down a rule that he described as a “central idea” of his tenure: the company would quit any business in which it was not No.
1 or No. 2. The lesson that people took away from this was clear—third place is for losers.
“First prize is a Cadillac Eldorado,” Alec Baldwin’s character says in the film “Glengarry Glen Ross.” “Second prize is a set of steak knives. Third prize is you’re fired.
”
Nintendo, though, has not just survived out of the spotlight; it has thrived. It has five billion dollars in the bank from years of solid profits, and this past year, though it spent heavily on the launch of the Wii, it made close to a billion dollars in profit and saw its stock price rise by sixty-five per cent. Sony’s game division, by contrast, barely eked out a profit and Microsoft’s reportedly lost money.
Who knew bringing up the rear could be so lucrative?
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.
The point is that business is not a sporting event. Victory for one company doesn’t mean defeat for everyone else. Markets today are so big—the global video-game market is now close to thirty billion dollars—that companies can profit even when they’re not on top, as long as they aren’t desperately trying to get there.
The key is to play to your strengths while recognizing your limitations. Nintendo knew that it could not compete with Microsoft and Sony in the quest to build the ultimate home-entertainment device. So it decided, with the Wii, to play a different game entirely.
Some pundits are now speculating, ironically, that the simplicity of the Wii may make it a huge hit. Nintendo wouldn’t complain if that happened. But, in the meantime, third prize is looking a lot better than steak knives.
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