"Thumb candy for dummies."

That's how, in 2003, Time magazine described Nintendo President Satoru Iwata's conviction that what consumers really wanted out of video games was simpler, more accessible entertainment – not the photorealistic graphics and massive online worlds that the company's competitors were chasing.

Less than four years later, the machine that Iwata built around his controversial strategy is the world's top-selling game console. In the United States, Nintendo's $250 Wii sold 360,000 units in April, while Sony's $600, graphically intense, Blu-ray-powered PlayStation 3 props up the bottom of the sales chart like a doorstop, with 82,000 units sold.

Wii is sold out across the globe. Having already moved more than 6 million of the consoles worldwide in the six months since launch, Nintendo is fighting to keep up with demand. On eBay, secondhand systems sell for around $380. In Tokyo, stores mark the consoles up well above retail price.

Before it's done, Nintendo believes that one out of every two next-generation game consoles sold could be a Wii, says George Harrison, the company's senior vice president. Nintendo is putting "the bulk of our mass-market effort against this extended audience," creating software that appeals to seniors, women and former gamers who had given up the hobby, he says.

"I can't think of anyone who hasn't expressed joy over Wii Sports," says John Schappert, COO of Electronic Arts' game studios. "They've hit a bull's-eye, delivering a console that gamers like and that brings nongamers to gaming."

By now, it was supposed to be all over for Nintendo.

The company that once ruled the video game world with an iron fist had lost its hegemony in the late '90s to Sony and the PlayStation. Any chance that the company might rebound seemed to evaporate when Microsoft entered the picture in 2001, and Nintendo's GameCube console fell into a distant third place behind PlayStation 2 and Xbox.

The 40-year history of the video game industry has been volatile, marked by drastic, unpredictable shifts in market dominance. But one of the maxims that has always held true is that third place is a dangerous position to occupy. Every other game hardware maker that found itself behind two rivals eventually dropped out of the race: Atari, NEC, Sega. And four years ago, most everyone assumed that Nintendo would face the same fate.

Nintendo itself probably even thought so. That's why the company decided to create a product that could carve out its own market niche – a game machine so different that even if it fell to third place, it would support a viable business model.

Rather than pursuing high-def graphics, Nintendo made Wii smaller and cheaper, leaving the graphics capability nearly identical to the GameCube's. Then it redesigned the game controller to look more like a one-handed television remote control. Built-in motion sensors meant that a game of tennis or bowling felt just like the real thing.

In a twist worthy of a Zen proverb, it was exactly when Nintendo decided to stop competing with Sony and Microsoft that it began to trounce them. Since launch, Wii has constantly outsold the PlayStation 3 and Xbox 360. In the portable game sphere, Nintendo's touch-screen DS system, built around the same philosophy as Wii, has outsold Sony's high-end PSP two to one.

The simpler-games philosophy has proven to be a lucrative one. Nintendo recently reported operating income of 226 billion yen ($1.9 billion) for fiscal 2007, up 150 percent from 2006. Meanwhile, Sony's games division experienced a drop in operating income of more than 80 percent. Analyst firm iSuppli reported in November that Sony is taking a $250 loss on every PS3 sold. That's in keeping with the long-practiced business model of game consoles: Sell hardware at a loss with the hope of making it up on software. But Nintendo, with its cheap, last-gen electronics, is making money at every turn.

The Wii is also defying the conventional wisdom that a game publisher must produce a continuous string of hit products to satisfy the fleeting attention span and fickle tastes of gamers. In Japan, where Wii Sports is sold separately, it has stayed on the country's weekly top-10 sales chart since the Wii's launch. In April, the games Super Paper Mario and Wii Play moved more than a quarter million copies each in the United States, outselling every Xbox 360 and PlayStation 3 game.

The shake-up in the console market has been great for Nintendo's fortunes, but has left gamemakers off balance. Most third-party game developers bet that the Xbox 360 and PlayStation 3 would be selling the most titles by summer. Electronic Arts had only two games at the Wii launch in November, versus five for PS3. And when they did ramp up their efforts, EA's game designers found that creating games that utilize the Wii's controller is challenging.

"We've done a great job with cross-platform code, with being platform agnostic," says EA's Schappert, but "to make a game for the Wii is more difficult." Bringing the Madden football game to the Wii cost EA "an enormous amount of money," he says, declining to put it in numbers, because of the extra cost of designing the game for the motion-sensitive controls.

Tony Key, vice president of Ubisoft, offers a more optimistic spin. "Designing a game around the Wii controller doesn't add cost, just opportunity," he says. Ubisoft recognized the Wii's potential early on, and was the first publisher to get a Wii development kit, says Key. Consequently, Ubisoft had nine games on the Wii by the end of 2006, which netted the company 11 percent of Wii software sales that year.

"You really had to make a commitment back in the spring of 2006 to be involved" in the Wii launch, says Nintendo's Harrison. "Many publishers didn't ... understand that there would be a market for Wii."

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