I heard about this book several years ago when I started hearing lots of noise coming out of the Video Game Industry. The press was buzzing about this new toy that Nintendo had just come out with. And yet it was the simplest least-sophisticated product they’d ever released.

Since the dawn of the home videogame market in the early 1980′s, Nintendo, Sega and later Sony and Microsoft butted heads trying to sell the coolest, most graphically intensive games possible. Whichever system (the machine you had to buy to play the games) had the coolest game titles would sell the most. To do the best games you had to have better tech than your competition. And so the wars went for years and years. By 2006, once-great Nintendo was in trouble: both Sony and Microsoft were vying to put high-powered movie/game players/computers in our living rooms, and Nintendo was still trying to… well…rescue the princess? The previous system, the Gamecube, was underpowered, compared to rivals Playstation and Xbox, and Nintendo needed a brand new strategy to compete. They needed a big change in direction. What they needed was a hit.

Later that year at the Consumer Electronics Show in Las Vegas, Nintendo of America president Reggie Fils-Aime got up on stage, and announced Nintendo would indeed be making a dramatic change in its Platform Strategy. They started off by showing the numbers on the ‘typical video game player’… mostly men, mostly under 40 with acne. To Nintendo, this market was on life support. The audience was baffled. What is Nintendo talking about? This whole conference draws tens of thousands of people and every major press troupe in North America! How can it be suffering? They were about to be even more stunned: everything Nintendo announced that day, from the system specs, to the controller (a wand device that is held like a remote control), even the bizarre/childish Wii name (and the thousands of clever jokes that followed) would send the tech press into total hysteria. At the show, attendees wait in line for hours just to touch the system. Sony and Microsoft never saw this coming. The new strategy actually worked.

Here was a system that was promising to be cheaper and do way less visually on screen than its competitors, have almost no online services, but would appeal to everyone from little kids to 80 year old retirees. By the end of the year they’d moved 3 million units. 6 months later they were up to 9 million. By the end of 2007, they’d moved 20 million units and still no one could find a Nintendo Wii in stores! By the end of 2008, they’d cruised to 45 million unit sales, an incredible feat. Today, Nintendo has sold about 80 million units to date, become Japan’s more valuable property, issued a newer more powerful controller, and shifted focus to its other platform: the portable Nintendo DS. Oh yeah, and Sony and Microsoft are scrambling to launch their own ‘motion’ expansion devices as I write this. (Nintendo Stock Price from August 2006-August 2007 Below.)

What happened? How did a company that had been in the business for 30 years not have enough stock for 3 years running? What was so great about swinging the controller around like a goof in your living room? What Nintendo did was stop trying to compete directly with its closest competitors and swim out to uncharted waters. They found a huge mass of people that were totally turned off by traditional video games, and customized their system to amass hoards of new first time video game players–people the competition wasn’t even talking to. Moreover, with their bizarre interface, the Wii was able to create totally new kinds of games, and even simulate more closely what was going on, on screen (e.g.. a bowling game where you actually aim the ball with the motion of your arm). It didn’t have to have high resolution graphics–it was just more fun!

So what is Blue Ocean anyway? The metaphor of sharks in the water fighting over their latest kill, turning the water red with blood, suggests that if you really want some lunch, rather than splitting the scraps with your competitors, why not swim to uncharted (no blood=blue) waters? The problem is traditionally you couldn’t say to a shopkeeper, “Why not just sell product to people who don’t live in this city? Why not just sell product to people who don’t use these widgets? Why not stop stocking stuff that people don’t like.” Traditionally you were stuck in a very niche market, often geographically, and there were a very select group of people who you marketed your products to. And the only way to make more money was to grow your market share, by taking it away from competitors. This leads to deep price slashing, and corporate rivalries. But here’s the problem: eventually profits in all these markets tends to zero. With profits you get healthy competition, and with competition you get price slashing. And soon, your shareholders are breathing down your neck. The game makers themselves also have a huge problem: creativity cool games can be a bad business model.

Look at the Movie business: a great blockbuster movie, with a couple big stars will cost about $100-200 million to make. That’s a $200M stake on a movie that no one knows is any good. The characters, the plot, the timing, the other movies coming out around the same time–it’s all up in the air. Because no one wants to lose that $200M, the movies that get made tend to follow an age old pattern: familiar themes, story arcs, and settings. They’re all designed to break-even on that $200 million investment. If the movie’s a hit, great, they can make the real profits on DVD sales, and sequels. But if the movie’s a flop, none of that happens. So the more expensive the movie is, the less creative flexibility they have. They don’t take chances, and thus, their art is compromised, and more boring/predictable movies get made.

Likewise, developing video games has become very expensive over the years, both in time and money. A good game probably costs $100M to make. Hiring the programmers, the storyboard guys, the graphics guys, bug testing, etc. It all costs big money. They don’t want to lose money either, so they focus on sequels and unoriginal games. Even Nintendo, looking to expand the Mario Brothers franchise, came up with a guy named Wario, gave him purple pants, and gave him a ton of games. The result? Customers are bored. And that is the cycle that Nintendo set out to smash. And they sure did. By not only asking their customers what they liked about the games, but by asking non customers what they didn’t like about video games. It’s not easy to swim to Blue Waters, but you can do it. Everyone can. Every business is selling a product or service, and has fixed resources. They make decisions based on all the resources they have and make priorities. The only difference is, with Blue Ocean, you get your customers (and non-customers’) priorities from them, you don’t just assume why they like your products.

There’s lots more in here, but let me just sum up by saying this: this is the book Nintendo Exces pored over when planning their little white box, and it kept the company alive. For the first time, a business book is not about beating your competition to a pulp and chewing up their market share, but rather, making them totally irrelevant.