Quoting from the Nintendo Annual Report 2012, the company strategy is the expansion of the gaming population, which is to encourage as many people in the world as possible, regardless of age, gender or gaming experience, to embrace and enjoy playing video games. Nintendo aims to expand their digital business by offering downloadable, paid add-on content, digitally distributing packaged software and so forth to adapt in environment changes surrounding the video game market and creating new business opportunities. We can conclude from the statement that to survive in video game industry, Nintendo needs to be adaptive to the market change. In order to be adaptive, innovation is become day to day business to Nintendo. Nintendo’s research and development is the source to create innovation to maintain the market share in video game industry. As top three players in video game industry in the past decade, Nintendo’s R&D expenses consistently increase for this past 10 years as is shown in figure below.
In this past decade, the strong competition between the top three players in the game industry force Nintendo to fight harder to delivered innovative technology. One of the most notably investment was during 2005 that can be seen in figure below. The following figure shows the percentage of R&D expenses compare to the sales in that particular year.
Many industry watchers have predicted that the future of gaming will be largely decided between Sony and Microsoft because of their technological capabilities, which are demonstrated in their cutting-edge game console PlayStation 2 and Xbox 360, respectively. Market share as of December 31, 2005, Nintendo only has 14.7% (GameCube), compared to Sony’s 68.3% (PlayStation 2) and Microsoft’s 17% (Xbox).  As mention in their 2005 Annual Report, Nintendo strategy is to expand the video game market by utilizing this wealth of talent and applying their game development philosophy to every product line. This is the first time Nintendo announce its new type of home entertainment machine, code name Revolution that exemplifies their strategy. This new game console, later known as Wii, is being introduced in 2006 and becomes the major breakthrough in video game industry. Soon after Nintendo launched Wii, Sony PlayStation 3 is launched. According to the PC World, both next generation game consoles have brought significant advance to the gaming world. The pricier Sony PlayStation 3 packs a lot into a console, such as high-definition graphics, a hard disk, and a Blu-ray Disc drive that delivers great image quality. But with its innovative controller, Nintendo's Wii may offer the better gaming experience.  The success of Nintendo Wii in 2006 is shown in figure below, whereas Wii is contribute over 40% of the total sales in Nintendo. This success then is being followed by the exploitation on its technology in 2007. Nintendo started to expand their customer base by making Wii relevant to each family member. Nintendo is expanding its Wii offering with the addition of wide assortment of channels in its Wii Menu, similar to having more TV channels, and its developing new types of video game entertainment such as Wii Fit. Wii Fit was a good follow-up move to attract young women as historically video-gaming non-consumers.
Nintendo’s successful improvement and positioning in video game consoles industry was represent in the success of Wii. This unique product has shown the dominant position that can be appreciated from the sales of the game consoles. According to the VG Chartz, Nintendo’s Wii has captured 46.29% of the market share in 2010, while Microsoft’s Xbox360 and Sony’s PlayStation 3 have captured 21.41% and 32.29% of the market share, respectively. The market share of Nintendo’s Wii has been between 40% and 50% since 2007, whereas the Xbox360 and PS3’s market shares have only been between 20% and 30%.  Innovation Organization