Nintendo's Wild Ride: How to Win, Lose, and Win It Back

Meet the Kid Who Owned Recess

Picture the one kid in school who owns literally every game console, and everybody has to borrow theirs and play by their rules — for ten straight years, with nobody even coming close. That was Nintendo around 1990. One machine, the NES, single-handedly rescued the entire video game industry after it had basically died, and then went on to grab 95% of the global market — like owning the whole playground and tossing everyone else the crumbs.

This isn't the story of how Nintendo won that crown (that's a different episode). This is the much stranger story: how does a champion that dominant manage to give almost all of it away? And then — how does it crawl back from the bottom to become the company that made the Switch you might be holding right now?

It's a story that goes win, lose, win, lose, and then win again. One of the hosts of the podcast this comes from put it perfectly: Nintendo's greatest strengths were also its greatest weaknesses, the whole way through.

Secret Weapon #1: Old Tech, New Tricks

Nintendo had an engineer named Gunpei Yokoi who thought about technology completely backwards from everyone else. His rule was: don't chase the newest, most expensive tech — figure out what old, embarrassingly cheap tech everyone else has given up on, and find a brand-new use for it. It's like every other kid at school saving up for the newest sneakers, while one kid realizes that last year's clearance-rack shoes, laced up the right way, run just as fast — and pockets the extra cash for something better.

In 1982, Yokoi used exactly that idea to build the Game & Watch line — tiny handhelds where each one could only play a single game (there was a Donkey Kong one, a Mario one, a Zelda one). Nothing inside them was fancy. They still sold 43 million units worldwide and made over a billion dollars, and were massive across Asia (almost nobody in the West ever heard of them). Even better: while designing it, Yokoi invented a tiny cross-shaped button — the D-pad — that ended up on practically every game controller ever made since. If you've got a controller in your hands right now, chances are that little cross traces straight back to this pocket-sized machine.

The Gameboy: The "Hopeless" Machine That Conquered the World

The Gameboy launched in Japan in 1989 and hit the US soon after at $89.95. Its screen wasn't technically black-and-white — it was black-and-green — and honestly, not cutting-edge at all. Nintendo's own internal nickname for it translates to "the hopeless game." Even the name "Gameboy" had a little smirk built in: Nintendo picked it as a dig at Sony, betting that if Sony ever built a handheld to match its massively popular Walkman, they'd call it the "Gameman."

So what happened? In three years, the Gameboy sold 32 million units — more than an entire generation of the NES. Nintendo's marketing team also pulled off two brilliant moves: a Father's Day ad campaign called "Punish Your Father" (dad keeps stealing the kid's Gameboy — so just buy him his own), and airplane-magazine ads aimed at bored business travelers that read: "If you're reading this, you're obviously bored. You need a Gameboy, and you need Tetris." It worked — 46% of American Gameboy players were adults. And its biggest killer app wasn't even a Nintendo game — it was a falling-block puzzle game that came out of the Soviet Union: Tetris.

INSIGHT: The Customers Everyone Else Ignored Think about your own school. There's usually one group nobody bothers to really serve well: the kid who just wants a quick five-minute game between classes, and grown-ups who never think of themselves as "gamers" at all. Everyone's busy trying to impress the kids who are already amazing at video games — nobody's bothering with those two overlooked groups. The Gameboy did something clever: it turned both ignored groups into loyal fans at once. It was cheap, tough, portable, and easy to pick up without much commitment — anyone could play it. Nintendo grew that idea into a whole business, and pretty much invented "casual gaming" without even meaning to.

Enter the New Kid: Sega Fights Back

Then a surprise transfer student showed up. One year, Sega's chairman cornered a guy named Tom Kalinske on a beach in Hawaii and recruited him on the spot. Kalinske came from the toy industry, was nearly 50, knew almost nothing about video games, and had just been pushed out of his last job by his own board after underperforming. He looked like the last person on Earth who could save a struggling game company.

Instead, he showed up with a four-point plan that's become a textbook example of how an underdog beats an entrenched champion:

1. Cut the price first. Kalinske figured Nintendo made its real money on hardware and would price its next console around $250, so he slashed Sega's Genesis from $200 to $150 before Nintendo even launched — forcing the incumbent to start worrying about cost before it had even shipped.
2. Swap the free game. Instead of bundling a forgettable game with every console, Sega threw in its brand-new mascot — a blue hedgehog named Sonic — for free with every purchase, happily giving up short-term profit to grow the number of people using its machines.
3. Advertise like you mean it. Sega's "Welcome to the next level" campaign, the iconic "Sega scream," a made-up but very impressive-sounding phrase called "blast processing," and a worldwide simultaneous launch date for new Sonic games nicknamed "Sonic Tuesday." Sega even drove trucks loaded with both consoles to malls across the US and let kids play five minutes of Mario and five minutes of Sonic before voting — seven out of ten kids picked Sonic.

INSIGHT: What Is "Counter-Positioning"? Imagine Nintendo as a school-supply store that makes its real profit selling notebooks (the game console itself) — the price already has a nice chunk of margin baked in. The new kid on the block, Sega, figured something out: what if I sell my notebooks at almost no profit, and even throw in a free fancy pen (the free Sonic game), just to steal the store's customers? Nintendo got stuck in an impossible spot — match the price cut, and it wipes out the very business model it depends on; don't match it, and Sega eats away its customers bit by bit. This trick — attacking exactly where the champion can't afford to fight back — is called counter-positioning: the reigning leader literally cannot respond, because responding means smashing its own business model first.

Three Mistakes a Champion Made

While Sega kept pressing, Nintendo was quietly making mistakes of its own.

Mistake #1: It threw away its own biggest advantage. To get the price of its new console, the Super Nintendo, down to $199 to compete with Sega's price cut, Nintendo made a call: drop backward compatibility, which would have added about $75 to the cost. That meant games from the old NES simply wouldn't work on the new machine. Imagine switching schools and refusing to bring your best friend along — Nintendo left millions of loyal customers behind and just hoped they'd eventually follow.

Mistake #2: It burned a friend it really shouldn't have. In 1991, Sony and Nintendo had been building a CD-ROM add-on together for the SNES — codenamed "PlayStation" — and were basically partners. Sony announced the partnership publicly at an industry trade show. The very next day, when it was Nintendo's turn to hold its press conference, Nintendo said nothing about it — and instead announced it was now partnering with Sony's biggest rival. Sony got publicly blindsided in front of the whole industry. The real disagreement was over how to split the money, but the way Nintendo handled it was brutal. Sony went off and built the PlayStation entirely on its own — and four years later, Sony's annual revenue hit $38 billion, while Nintendo's was only $4 billion that same year. It might be the most damaging own-goal in Nintendo's history.

Mistake #3: It narrowed its own reputation. Nintendo got tough — maybe too tough. First, two old rivals sued Nintendo for monopoly behavior; Nintendo won the case, but the lawsuit itself exposed that the company wasn't exactly "family-friendly" behind the scenes. Then Nintendo went on the offensive itself, suing a video rental chain for renting out its games and suing the maker of a cheat device — and one Nintendo executive even said publicly: "You have no idea what you've taken on. We are a tiger who will skin you piece by piece." Nintendo also bought an American baseball team. It won every single one of these fights — but the more it won, the more its reputation as a bully spread. Meanwhile, Sega's ads kept hinting that "you've graduated from Nintendo — that's baby stuff," and plenty of teenagers really did ditch Mario because of it. Between its own choices and Sega's marketing, Nintendo got boxed into the "toy aisle" for the next twenty years.

Half the Kingdom, Gone — And More Rivals Show Up

In just a few years, Nintendo's market share dropped from nearly 100% to roughly 50% — handing half its empire to a rival nobody had taken seriously a few years earlier. And the pain didn't stop there. The next console, the N64, sold only 33 million units, while Sony's first PlayStation sold 102 million in the same era. The one after that, the GameCube, did even worse — just over 20 million, actually behind Microsoft's brand-new Xbox (24 million) — described as "a smoking crater." Aside from one total flop of a handheld, it was the worst home-console performance in Nintendo's history. In 2002, Hiroshi Yamauchi, who had run Nintendo for decades, handed the company to Satoru Iwata with one parting instruction: give birth to wholly new ideas, build hardware that reflects that ideal, and make software that lives up to the same standard.

INSIGHT: What's a "Moat"? A moat is literally the ring of water around a castle — an enemy either has to swim a wide, deep river or scale a tall, thick wall to get in. In business, a "moat" means anything that's genuinely hard for a competitor to take away from you. Back when Nintendo owned nearly the entire global market, its moat was wide and deep — it controlled almost every game and every store shelf. But once Sega, and later Sony, built their own bridges (their own games, their own stores), that moat mattered a lot less. That's when it became clear that Nintendo's real, unbreakable moat was never the hardware itself — it was characters like Mario and Zelda, which nobody else could copy or take away.

The Handheld Comeback: DS and Wii Work Miracles

While the home-console side kept losing ground, Nintendo quietly built a whole new road on handhelds. The DS launched in 2004 and sold 154 million units, the second best-selling console of all time, right behind Sony's PS2. With games like Brain Age and Nintendogs, Nintendo fully cemented "casual gaming" as its own category — this time even reaching grandparents who had never played a video game in their lives.

In 2006, the Wii launched using infrared motion-sensing technology that had actually existed for over a decade — Yokoi's "old tech, new tricks" philosophy striking again. It bounced back from the GameCube's 20 million units to sell over 100 million, with revenue that came close to $20 billion — still Nintendo's all-time high to this day.

The Darkest Hour: Phones Steal Everyone's Free Time

The good times didn't last. Around 2008, app stores on smartphones exploded, and they pulled away the exact casual players the Wii and DS had spent years building up — in droves. The next handheld, the 3DS, got a 30% price cut less than six months after launch. The console after that, the Wii U, sold only 13 million units — worse than even the GameCube. In fiscal year 2012, Nintendo posted its first-ever annual loss, and kept losing money for several years after that. Plenty of shareholders had the same advice: do what Sega eventually did — get out of the hardware business entirely, and just put your characters on smartphones, where the money was flowing at the time.

Iwata's Choice: Protect the Soul, Even If It Costs You

Under all that shareholder pressure, Nintendo's programmer-turned-CEO Satoru Iwata did the opposite of what everyone expected. He said no. In his own words:

"Making smartphone games is absolutely not under consideration. If we did this, Nintendo would cease to be Nintendo... It probably would be the correct decision in the sense that the moment we started to release games on smartphones, we'd make profits. However, I believe my responsibility is not to short term profits, but to Nintendo's mid- and long-term competitive strength."

In 2013, he and Mario's creator Shigeru Miyamoto quietly drew up a secret three-point plan. First: dip a careful toe into mobile through a partnership with a Japanese mobile game company, making a few small games with Nintendo's characters — but never moving the whole company onto phones. Second: make the characters and stories themselves worth even more — theme parks, movies, remakes of classic games. Third: use the time bought by the first two steps to completely rethink the hardware from scratch. That plan eventually produced the Switch. Sadly, Iwata died of cancer in 2015 at just 55 years old — he never got to see the Switch launch.

INSIGHT: Short-Term Wins vs. Long-Term Goals Say you're saving up in a piggy bank for something you really, really want — and along the way you spot a decent little toy you could grab right now. Grabbing it feels great in the moment, but if your piggy bank ends up empty, that bigger thing you actually wanted might never happen. Iwata faced almost exactly that choice: move all the characters onto smartphones right away, and the company's books would instantly look better, keeping shareholders happy. Instead, he chose to keep "saving" — even through several years of real losses — to protect something bigger down the road. History proved him right. But it's worth being honest: if the Switch had flopped, this same stubbornness would probably just be remembered as a costly mistake.

The Little Monster That Never Gets Old: Pokemon's Secret

Buried inside these dark years is a story almost nobody believed in — and it became Nintendo's biggest treasure of all. A man named Satoshi Tajiri started a tiny studio called Game Freak. Inspired by the Gameboy's link cable and childhood memories of catching bugs, he came up with an idea: use the cable to trade and battle little monsters you'd raised yourself. The whole team was just four programmers, working out of Tajiri's dad's basement, funded by his dad's money, with zero income for six years. Nintendo wasn't especially excited about it — except for Miyamoto, who spotted it immediately and personally mentored the project (catching bugs as a kid was exactly his kind of thing too).

The game launched in 1996. Most Gameboy games sold well right away and then faded — this one just kept getting bigger. Today, the franchise has earned close to $100 billion over its lifetime — roughly $60 billion of that from merchandise (mostly trading cards; about 50 billion cards have been printed worldwide) and about $35 billion from the games themselves. For comparison, the entire Marvel movie universe has made around $30 billion at the box office lifetime — less than half of what Pokemon has made from merchandise alone. One fun detail: the hero of the games, Ash Ketchum, is named "Satoshi" in the original Japanese, a tribute to founder Satoshi Tajiri; his rival, Gary, is named "Shigeru," a tribute to Shigeru Miyamoto.

INSIGHT: Why a Character Can Be Worth More Than a Machine Game consoles get replaced every few years, and nobody can really predict which ones will sell. But there's one thing that never goes out of date along with the hardware — the characters and the stories themselves. Think of it like a best friend who never transfers schools, never graduates, and just keeps growing up alongside you no matter which phone or console you switch to. Resources like that — impossible for anyone else to copy or take away — are Nintendo's sturdiest moat today, tougher than any factory or patent, because factories can be built by anyone and patents can eventually be worked around. But the place Mario, Zelda, and Pikachu hold in generations of hearts? Nobody can replace that.

The Big Comeback: The Switch Nobody Believed In

In March 2017, the Switch launched. On launch day, Nintendo's stock actually dropped 7% — most of Wall Street didn't believe in this strange handheld-and-home-console hybrid. Over the following six years, the Switch sold 123 million units, completely flipping the story around.

An even more interesting shift happened quietly in the background: in late 2018, Nintendo launched a paid membership service. Within three months it had 8 million subscribers; today that's grown to roughly 35–40 million, bringing in over a billion dollars a year in steady income. In 2021, the first Nintendo-themed area opened at Universal Studios Japan, and revenue that year climbed to $16 billion. By the time this episode was recorded in 2023, Nintendo's market value sat around $50 billion, earning $5–6 billion a year in operating profit.

INSIGHT: "Membership" Is a New Kind of Loyalty Ever had a subscription — a streaming service, a gym membership, a library card? Once you're signed up, you're more likely to actually show up, because you've already paid and it feels like a waste not to. Nintendo's old console business was basically one-time purchases — you bought an NES once, and there was no guarantee you'd ever buy anything from Nintendo again. A subscription is completely different: you pay a small amount every single month, and the company gains a customer who's "always there" without having to win you over from scratch each time. That's the same idea behind subscriptions you might already know — it trades one big one-time payment for a slow, steady, year-after-year relationship of trust.

Fun Facts and Weird Trivia

• Sega's name is actually short for "Service Games" — the company was started after World War II by Americans running businesses near US military bases in Hawaii, and its very first products were gambling machines, before it pivoted to arcade games and eventually became the Japanese company we know today. Funny enough, Nintendo itself also got its start in a gambling-adjacent business — both of these rivals reinvented themselves out of the exact same kind of beginning.
• That impressive-sounding marketing term "blast processing"? There's arguably something in Sega's own developer manual you could stretch to mean that, but it basically didn't do anything real — it just sounded cool. A lot of tech-sounding phrases in phone ads today follow exactly the same playbook.
• The processor chip inside the Switch was actually designed back in 2014 and had been sitting around without a real home — until it finally found its purpose inside the Switch.
• There's a popular story that the founder of a famous ride-hailing company was once "ranked #2 in the world" at Wii Tennis as a young man. That claim turned out to be false — the Wii never had a global leaderboard at all — but it says something real: the Wii genuinely got plenty of busy adults who never had time for video games completely hooked.

Three Things This Story Teaches You

First, your biggest strength is very often your biggest weakness too. The NES saved the entire video game industry — but because it was so successful, Nintendo couldn't bring itself to retire that cash cow, and got caught flat-footed by a price war it never saw coming. Its deepest moat eventually shifted too — from "hardware and stores" to "characters and stories."

Second, don't just defend what you already have — be willing to attack yourself first. Nintendo only kept clawing its way back from the bottom because it was willing to retire its own products early, and take chances on strange-sounding new ideas like infrared motion controls, dual screens, and detachable controllers. Playing pure defense never wins.

Third, when something really matters more, it's worth taking a short-term hit for it. Iwata could have made the company's numbers look great immediately — he chose the much harder road instead. If Nintendo had rushed headfirst into mobile gaming back then, there's a good chance the Switch never gets made, and you wouldn't be holding one today.

What's Next

If you haven't read the earlier chapter of this story yet — how Nintendo grew from a small playing-card company into a business that nearly monopolized the entire world's game consoles — that "how a champion gets built" story is well worth going back for. And Nintendo's story didn't stop after the Switch either: there's more drama still to come involving chip companies and Hollywood studios, tucked inside other companies' stories, waiting to be told another time.