In November 2006, Nintendo launched the Wii. Its competitors — Sony's PlayStation 3 and Microsoft's Xbox 360 — were fighting a specifications war. More processing power. Better graphics. Faster frame rates. The gaming industry's entire logic said that winning meant having the most powerful hardware.

The Wii was, by every technical measure, a generation behind. Its graphics were inferior. Its processing power was a fraction of the competition. It could not play DVDs. Serious gamers dismissed it immediately.

It outsold both of them. The Wii sold over 101 million units worldwide. It was the best-selling home console of its generation. And it was profitable from day one — the only console in that generation that could make that claim. Sony and Microsoft sold hardware at a loss, betting on software revenue to recoup the investment. Nintendo made money on every box that left the factory.

Every week in this series, I study one entity — a musician, a company, a family, an institution — that has built something genuinely durable. I pull apart how they did it. I extract the principles. And then I apply them — because every rule that turned a 19th-century playing card company from Kyoto into the most durable name in gaming applies equally to your newsletter, your product, and your business.

I'm calling it The Nintendo Code. Five principles. Counter-intuitive. Brutally effective.

The gaming industry in 2006 was a two-player spec race. Sony and Microsoft fought over the same customer — the 18-to-34 male who wanted the fastest, most photorealistic gaming experience available. Both companies spent billions on hardware R&D. Both lost money on every console sold. Both competed for the same third-party game developers.

Nintendo's then-president, Satoru Iwata, looked at that battlefield and walked in the other direction. He asked a question that neither Sony nor Microsoft was asking: who is not playing video games, and why?

The answer was most people. Non-gamers — parents, grandparents, casual players — were not playing because the controllers were intimidating, the games were complex, and the culture was exclusionary. Nintendo built the Wii for them. The motion controller was intuitive. Wii Sports — bundled with every console — required no gaming literacy. A grandmother could pick it up and bowl.

Nintendo did not win the spec war. It refused to fight it. It found a market that was orders of magnitude larger than the existing one and built a product specifically for people the industry had ignored.

The lesson: competing on the same axis as your strongest competitors is the most expensive strategy available. Find the axis they are ignoring and own it.

Most hardware companies build the machine first and then figure out what to do with it. Nintendo does the opposite. It designs the experience first — the game, the interaction, the feeling — and then builds hardware to deliver it.

The Wii was built around the idea of motion gaming. The DS was built around dual screens and a stylus. The Switch was built around the idea of seamless portable-to-television play. In each case, the hardware was a delivery mechanism for a specific experience that could not exist on any other platform.

Shigeru Miyamoto, Nintendo's legendary game designer, has said repeatedly: "The experience is what matters. The technology is a means to an end." This is why Nintendo has never needed the fastest processor or the best graphics. Its hardware exists to enable unique interactions — not to win benchmark tests.

The Switch, launched in 2017, reinforced this. It was underpowered compared to the PS5 and Xbox Series X. But it offered something neither competitor could: the ability to play a full-fidelity console game on the bus and then dock it to the television when you got home. That experience — not the specifications — sold over 146 million units.

The lesson: technology should serve the experience, not define it. The question is not "what can the hardware do?" It is "what should the customer feel?"

Mario, Link, Pikachu, Donkey Kong, Kirby, Samus Aran. Nintendo's intellectual property portfolio is the most valuable in gaming — and arguably one of the most valuable in all of entertainment.

Mario alone is estimated to have generated over $40 billion in lifetime revenue across games, merchandise, licensing, and theme parks. The 2023 animated film The Super Mario Bros. Movie grossed over $1.3 billion worldwide, making it the highest-grossing video game adaptation in history.

Nintendo understood, decades before its competitors, that hardware is a depreciating asset. Every console becomes obsolete. But characters — if managed correctly — appreciate in value. A child who plays Mario Kart at age seven buys Mario Kart for their own children 25 years later. The hardware changes. The character endures.

This is why Nintendo has never licensed its first-party characters to competing platforms. Mario does not appear on PlayStation. Zelda does not appear on Xbox. The characters are the reason you buy the hardware. Remove the exclusivity and you remove the reason to buy the console.

The lesson: own the asset that appreciates. Hardware depreciates. Content depreciates. Characters — intellectual property with emotional resonance — compound in value over generations.

Nintendo's history is not a straight line of success. The Virtual Boy, launched in 1995, was a commercial disaster — a clunky headset that caused headaches and sold fewer than 800,000 units. The GameCube (2001) was a distant third behind the PlayStation 2 and Xbox. The Wii U (2012) was a catastrophic flop, selling only 13.56 million units in its lifetime.

After the Wii U, analysts wrote Nintendo off. The company was finished. The console business was over. Nintendo should become a software company — make mobile games, license its characters, and abandon hardware entirely.

Nintendo did none of those things. It went quiet. It absorbed the loss. It redesigned. And in March 2017, it launched the Switch — which became one of the best-selling consoles in history.

The company has survived because it has something that most technology companies do not: financial reserves and the patience to use them. Nintendo has consistently maintained a cash position large enough to sustain years of losses without borrowing. As of its most recent filings, it holds over $10 billion in cash and short-term investments. It could lose money for decades and survive.

The lesson: the ability to survive failure is more important than the ability to avoid it. Keep reserves. Maintain patience. The company that can afford to fail and try again will eventually find the hit.

The gaming industry has historically marketed to a narrow demographic: young men who self-identify as gamers. The marketing is aggressive, competitive, and exclusionary by design. You are a gamer or you are not.

Nintendo has consistently refused this framing. Its marketing shows families playing together. Grandparents bowling in the living room. Children and parents sharing a screen. The message is not "this is for gamers." It is "this is for people."

The Nintendo Switch commercials are masterclasses in inclusive marketing. They show the console being played on airplanes, in parks, at parties, in living rooms. No explosions. No trash talk. No gamer culture signaling. Just people having fun.

This is not soft marketing. It is market-expansion marketing. By refusing to define its audience narrowly, Nintendo addressed a market that was five to ten times larger than the "core gamer" segment. The Switch did not just sell to gamers. It sold to parents, travelers, casual players, and people who had not touched a game console in 20 years.

The lesson: the size of your market is determined by how you define your customer. Define them narrowly and you compete in a small pond. Define them broadly — without diluting the product — and you compete in an ocean.

Find the empty space. Competing on the same terms as the market leader is expensive and usually futile. Look for the customers that the industry is ignoring.

Start with the experience. Build the tool that delivers the feeling — not the most powerful tool available. Technology serves experience, not the reverse.

Own what appreciates. Hardware, platforms, and features become obsolete. Characters, brands, and intellectual property with emotional resonance compound in value.

Build the reserves to survive failure. Every successful company has a string of failures behind it. The difference is whether you had the cash and patience to try again.

Expand the definition of your customer. The market you cannot see — the non-customers — is almost always larger than the market you are fighting over.

A playing card company from Kyoto, founded in 1889. A console that was a generation behind its competitors. A plumber in a red hat who has generated over $40 billion. More than 146 million Switches sold. A $10 billion cash reserve.

That is not a gaming company. That is a code.

Next edition of The Alun Hill Business Code: Edition #14 examines LEGO — the company that nearly died and then became the most valuable toy brand on earth.