Despite sitting in his swish Santa Monica hotel room, Satoru Iwata insists that he is swimming in a clear sea teeming with women, pensioners and repentant couch potatoes.

The Nintendo president, a man in the throes of reinventing the $30 billion (£14.8 billion) video games industry, has not just cracked under the pressure. Rather, he is explaining his belief in the “Blue Ocean” theory of business, which says that to succeed you must reach markets, or blue oceans, that are free from competitors. Venturing into “bloody red oceans”, where packs of rivals fight tooth and nail, can only lead to failure. The central premise, that it is best to zig when others zag, sums Mr Iwata up well.

In 2002, the 47-year-old Harry Potterish game engineer became only the fourth Nintendo president in its 118-year history. “I was the youngest man on the board. It was a big surprise,” he says.

Before long, he was convinced that the biggest blue ocean lay in making video games for “people who generally don’t play video games”. Women are the most prized targets but this untapped market spans a vast swath of the population – everybody bar fast-thumbed teenage boys.

“Intellectually, yes, this sounds obvious,” Mr Iwata says. “But within Nintendo, among the shareholders, everywhere, there was resistance. When I first raised the idea, in 2003, nobody believed it was possible to broaden the games market.” Four years on, plenty of people believe it is. “Differentiation is everything” was, he says, the most important lesson passed to him by his predecessor, Hiroshi Yamauchi, who had led Nintendo for more than 50 years. There had been a few wrong calls: the toy vacuum cleaner that never caught on; the 1960s foray into taxis, and love hotels that fell flat. But against those, the group had been transformed from a playing cards company to a pioneer of arcade games and 3D graphics.

Advancing that legacy, in 2005 Mr Iwata launched the handheld DS. Touch-screen and voice-recognition technology made for a style of play unlike anything else on the market – and at a much lower price than its main rival, Sony’s PSP.

Nintendogs, a virtual pet game, was rolled out and snapped up by girls. Brain Training, billed as a cerebral workout, was launched for game-averse grown-ups. Each has since sold more than ten million copies. The DS itself has sold more than 40 million units (twice as many as the PSP) making it Nintendo’s best seller.

It is not only on the gaming side that Mr Iwata is challenging the conventional wisdom. Blue Ocean thinking says that “having a unique product is more important than an attractive price point,” he insists.

But with a reputation as a mean, even stingy, negotiator who is quite open to playing suppliers against each other to secure the best deal, it is not surprising he has also taken issue with his sector’s severe economics. “You must know when not to follow the traditional way of thinking,” he explains. “It is very odd to think that so many people still believe consoles have to make such huge losses at the start.”

Odd indeed, but for years manufacturers have developed and sold consoles as loss leaders in order to profit from larger margins on software later. In that tradition, Sony committed itself, at a cost of hundreds of millions of dollars, to co-developing the PlayStation 3’s powerful cell processor from scratch.

By contrast, for the follow-up to the DS, the Wii, Mr Iwata bought a much cheaper chip off the shelf. It has followed that games are much cheaper to make for the Wii, an advantage in attracting third-party games developers. One estimate puts the average Wii title budget at $5 million. The equivalent figure for the PS3 is put at four times that.

Largely because of Mr Iwata's thrifty innovation, analysts reckon that each Wii is being sold at a $50 profit. “It’s not as much as that, but it is making a profit,” he says. To put that into context, however, each PS3 is said to be making Sony a loss of up to $200.

Analysts reckon that the Wii is outselling the PlayStation 3 and Microsoft’s Xbox 360 by at least two to one. Mr Iwata says that he predicts 14 million will be sold this year.

This new dominance – when Mr Iwata took the job, Nintendo's GameCube was placed a poor third in a three-horse race – has been enough to make his rivals look fresh out of ideas. An exasperated Sony has already seen Nintendo, a company with an eighth of its revenues, surge fourfold in two years to match it in stock market value – 6.6 trillion yen (£27 billion) last month.

This week, in a move that smacked of panic, Sony slashed the price of the PS3 in the United States, to $500 from $600. “A very red-ocean act,” Mr Iwata describes it.

The big question is: how long can Nintendo stay ahead? “There is no doubt that our blue ocean will turn red,” Mr Iwata concedes. “Microsoft, for example, has made it clear that it wants to follow our success.”

There are also doubts over the longevity of the Wii. Sceptics say its core technology (that cheap chip) belongs to the last generation of machines and cannot be masked by a cute “magic wand” controller for too much longer. While the PS3 could be relevant for a decade, the Wii may struggle to avoid looking jaded much after 2010, they add.

Mr Iwata says that he just does not know how long he has before the console is consigned to the great landfill of history. “We are planning for several eventualities,” he says. “But it is hard to know, as what we are doing is changing so much in the industry.”

In the meantime, he has just released three new cute controllers, including the Balance Board, a pressure-sensitive mat that tells players if they are overweight and monitors the effectiveness of an exercise regime. There is nothing else quite like it on the market. Mr Iwata is swimming hard, and against the tide again, to get to his next blue ocean.

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