Like most kids of the late 1980s, I was obsessed with the Nintendo (NASDAQOTH:NTDOY) Entertainment System. In fact, I was so obsessed that I once sketched the designs for my own game on notebook paper and mailed it to Nintendo's headquarters in Seattle, in hopes that they would manufacture the game for me. Of course, that dream never came true, since my "game" was just a crudely drawn maze vaguely resembling the Nintendo Power map for The Legend of Zelda.
Yet surprisingly, Nintendo actually replied to my letter. I received a letter thanking me for my ideas along with a pamphlet about Nintendo's history -- from its humble beginnings as a trading card company to its evolution into a video game superpower. It was from that letter that I first heard of a man who sadly passed away recently -- former Nintendo president Hiroshi Yamauchi.
Nintendo leaves trading cards behind
Hiroshi Yamauchi led Nintendo from 1949 to 2002, transforming his great-grandfather's playing card company into a video game empire. Yamauchi originally steered Nintendo toward board games, hotels, and even instant rice before he realized the market potential for video games, which started gaining traction with the commercial release of the Magnavox Odyssey in 1972.
Recognizing the potential of this new technology, Nintendo gained the exclusive rights to distribute the Odyssey in Japan in 1974. In 1977, Yamauchi hired game designer Shigeru Miyamoto -- the man whose creations would define the Nintendo we know and love today.
Yamauchi was the businessman who remained detached and uninterested in the games that his companies were known for. Miyamoto, on the other hand, was the dreaming gamer who created Nintendo's seminal arcade hit Donkey Kong in 1981, which introduced the world to the company's beloved mascot, Mario. The odd pairing of Yamauchi and Miyamoto became the perfect engine for Nintendo's growth -- wonderfully designed games marketed with strong business acumen.
Nintendo rises from Atari's ashes
In 1977, the Atari 2600 became a best-selling home console and popularized video games. Yet that success caused everyone to start making their own video games, even companies with no prior game-making experience. The result was a flood of poorly conceived games, which crashed the entire video game industry in 1983.
Across the ocean, Nintendo launched its first home gaming console, the 8-bit Family Computer (Famicom) in 1983. Instead of opening the doors to all developers, as Atari did, Yamauchi set up a strict approval system that ensured that only the highest quality games were released for the console. That business model was firmly established by the time the Famicom's western version, the Nintendo Entertainment System or NES, arrived in North America in 1985.
Under Yamauchi's firm guidance, the NES kicked off a gaming renaissance in the late 1980s to early 1990s. Miyamoto's iconic characters, such as Mario, Luigi, Zelda, Link, and Donkey Kong, were as easily associated with video games as Mickey Mouse was to cartoons. The 16-bit Super Nintendo Entertainment System (SNES), introduced in 1990, reinforced the company's dominant position in home gaming.
Enter the Game Boy
However, no summary of Yamauchi's legacy would be complete without mentioning Gunpei Yokoi, who stayed with Nintendo from 1965 to 1996.
Yokoi invented the D-pad (cross pad) on controllers, which remains a fixture on modern console controllers. Yokoi was also the producer of Metroid, a series that would go on to become as important as Miyamoto's core franchises.
Most important of all, Yokoi created the Game Boy, which was released in 1989. The Game Boy revolutionized portable gaming, putting full-featured 8-bit games into a black and white LCD format. Prior to the Game Boy, portable gaming consisted of crudely made LCD units, which swapped and projected images onto a static background, much like a watch.
Without Yokoi, who tragically died in a traffic accident in 1997, we wouldn't have any of today's great portable gaming devices, like the Nintendo 3DS or Sony's (NYSE:SNE) PSP Vita.
Sony and Microsoft shatter Nintendo's empire
However, Yokoi's final creation, the head-mounted Virtual Boy in 1995, was considered a failure and preceded Nintendo's darkest years. In 1994, Sony entered the console race with the PlayStation, a CD-based console that could display 3D graphics along with full-motion videos. The SNES suddenly looked extremely dated by comparison.
Yamauchi fired back at Sony with the release of the Nintendo 64, but made a critical mistake by sticking with the cartridge format. Yamauchi believed that PlayStation CDs would be too easy to pirate, and the loading time was cumbersome. Game developers disagreed -- developing games for Nintendo required expensive proprietary cartridges for testing; developing PlayStation games only required writeable CDs. Cartridges also lacked enough storage capacity for high-quality videos and speech.
Faced with that decision, many longtime partners, such as Squaresoft (now Square Enix), left Nintendo. The Nintendo 64 was crushed by the PlayStation, and suddenly Sony became the dominant name in gaming. The Nintendo 64's successor, the GameCube, fared slightly better against Sony, but Microsoft's Xbox suddenly disrupted the North American market in 2001.
By the time Yamauchi left Nintendo, Sony and Microsoft had become the dominant names in home gaming, although Nintendo still controlled the handheld gaming market with the Game Boy Advance.
When Yamauchi stepped down, he told reporters, "I have no energy left."
Yet the empire bounces back
Yet, Yamauchi's resignation was hardly the end of Nintendo. His successor, current Nintendo President Satoru Iwata, brought the company back to life with the 2004 release of the handheld Nintendo DS and the motion-controlled Wii home console. Nintendo stock hit an all-time high in 2007 on surging sales of those two products.
However, Nintendo's stock has fallen significantly since then, and Iwata, like Yamauchi before him, is facing new challenges -- such as smartphone games and higher-powered consoles like the PlayStation 4 and the Xbox One.
It's hard to tell what will happen to Nintendo from here on out, but one thing remains certain -- Mr. Hiroshi Yamauchi brightened up many of our childhoods with his gaming consoles, in an age when consoles were less like today's monstrosities and more like labors of love.
Leo Sun has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.