Here’s what you’ll learn from NVIDIA’s strategy study:
- How jumping on an untapped opportunity with a well-defined strategy can help you beat the biggest rivals.
- How you can manage your capabilities to generate a sustainable competitive advantage.
- How building a long-term growth plan requires taking into account the societal and environmental impact of your business.
NVIDIA Corporation is a multinational tech company based in California. The company is perhaps best known for its Graphics Processing Units (GPUs), which are used in everything from video games to cryptocurrency mining.
Multiple institutions own NVIDIA, with the top three being: Vanguard Group Inc., BlackRock Inc., and FMR LLC. However, there are also a few individuals who own NVIDIA shares, with the top three being:
- Jen-Hsun ("Jensen") Huang, co-founder, president, and current CEO
- Colette M. Kress, current EVP, and CFO
- Mark A. Stevens, ex board member
NVIDIA’s market share and key statistics:
- Total assets of $44,187B as of November 18, 2022
- Revenue of $16.68 billion in 2021
- Total number of employees in 2022: 22,473
- Brand value of $124B in 2022
- Market Capitalization at over $328.7B
Humble beginnings: NVIDIA’s starting failure and its following perfect strategy
In 1993, Jensen Huang, Chris Malachowsky, and Curtis Priem founded NVIDIA.
They did it with an initial capital of $40k, a lot of expertise, and a strong conviction that the next big opportunity in technology is in accelerated computing — a parallel processing approach that frees the computer’s Central Processing Unit (CPU) and gives the heavy lifting of data processing to other processors, like GPU.
Even though the company implemented a highly successful strategy from 1998-2008, it stumbled in its first steps.
NVIDIA’s first products failed but sustained the company
The first product that the company created was a multimedia card called NV1, which was introduced in the market in 1995.
The founders leaned on the expected multimedia revolution at the time and tried to ride the wave and establish an industry standard. However, things didn’t go as planned, and NV1 wasn’t well received in the market. It wasn’t considered better than the competitors', and it was hard to program. As a result, the games that were created for the NV1 weren’t optimized.
The company worked on a few more versions of the multimedia card, keeping the company alive, but they soon accepted that it was a flop.
So, the team went back to the board and performed a new strategic analysis that took into account the team’s expertise and crucial market observations from industry experts like Ed Catmull, co-founder of Pixar.
Within four years of its founding, NVIDIA made a major strategic pivot and focused on the development of a new product that would be better suited for a new, exponentially growing market.
NVIDIA spots an opportunity and derives a winning strategy
The NVIDIA team noticed an attractive opportunity in the field of 3-D graphics, a sub-niche of their initial multimedia focus.
They decided to seize it by designing a graphic processing unit (GPU) that would render 3-D graphics. They abandoned the initial approach they had created with the NV1 and adopted the then quickly-rising and today’s standard in 3-D graphics processing, the graphics pipeline. An approach developed by a competitor, SGI.
However, the company retained its fabless trait outsourcing manufacturing.
Why did the team decide to compete in this fast-paced and highly competitive arena of computational power? For two reasons:
Firstly, the market’s demand for GPUs was expected to be “unlimited.”
Unlimited in the sense that it would surpass supply by a significant margin and wouldn’t slow down anytime soon. The reason was the emerging video game industry, where processing power was a competitive advantage for online video gamers. So, the better your GPU, the better your performance, and the more bragging rights you had about your gaming skills.
Secondly, they adopted a radically different position in the computational arena.
While Intel was taking advantage of the technology improvements to reduce their CPU’s costs and increase their profit margins, NVIDIA focused on maximizing their GPU’s performance and catering to the constantly growing needs of faster graphics rendering. There was no such acute demand for increased CPU performance.
But these two assumptions weren’t enough to secure NVIDIA’s success in the 3-D rendering space. It was the flawless execution of their innovative strategy that did the trick.
NVIDIA’s innovative strategy that secured its growth in its first decade
The competitive advantage that the company needed to secure its success came through an innovative bet it took.
To understand the innovation and why it was a bet, like every great strategy is, let’s see the industry’s “road map.”
The progress in computational power depended on decreasing the size of transistors and reducing consumed power. So, the first player who found a way to design a significantly smaller transistor and a way to manufacture it would gain the upper hand. However, the rate of progress seemed to follow an observation by Gordon Moore, Intel’s co-founder, known as Moore’s law. It basically stated that significant progress would occur every 18 months. And the whole industry relied on that law accepting that nobody could really break it, at least not consistently.
But that’s exactly what Jensen Huang did with NVIDIA.
The radically different positioning in the computational arena was built upon Huan’s belief that NVIDIA could actually provide an equivalent improvement of computational power in one-third of the industry’s cycle by focusing on increasing the number of transistors in their GPUs, taking full advantage of the graphics pipeline approach.
It was a technological innovation that could lead to a competitive breakthrough. And here is why it succeeded:
Firstly, it allowed the company to have multiple lightning strikes within its category. A tactic that allowed it to grab the attention of the market, the customer, and the media. Every time they announced a new GPU that doubled the performance of the previous one, they enjoyed free large-scale marketing and potentially conquered the market with the best product. They had three times more attempts than their competitors.
Secondly, because they were building a data and experience flywheel much faster. Due to the ultra-fast iteration, the workforce of NVIDIA gained experience in how to turn their technological designs into sellable products three times faster than their competitors. And since the available human capital in the industry was limited, experienced engineers were another benefit that amplified NVIDIA’s competitive advantage.
And as the company became the category queen, it doubled down on solving technical challenges and changing the industry’s structure to reinforce its position.
With that strategy, NVIDIA quadrupled its revenue from 2000 to 2008.
But as the physical limit to integrated circuits was fast approaching (you can reduce the transistor’s size for that much), NVIDIA was losing its advantage and had to formulate a new strategy.
Key Takeaway #1: When demand is up, build your position in the arena from a different point of view
Study the market to spot emerging opportunities and study your competitors to understand their most important strategic decisions.
Then build a COHERENT strategy based on the following:
- A different point of view
- Your internal capabilities
And aim for a sustainable competitive advantage.
Ask yourself, which industry rule can we challenge to generate a valuable, different position?
NVIDIA’s digital transformation services of scale
Since the pandemic, the demand for the digitalization of businesses’ communications and infrastructure has skyrocketed.
The business world is looking for more automation options, cloud services, 5G, Artificial Intelligence (AI), and processing power. And these needs come with exceedingly high expectations for security, data capabilities, and even sustainability requirements. The companies that fall behind in their digitalization will face extinction. In other words, it’s the dawn of the Metaverse and Web3.
NVIDIA’s strategy is to dominate this space with its Omniverse platform.
Why businesses’ digital transformation is NVIDIA’s next competitive arena
First, we need to answer a different question: why has digital transformation become imperative for every modern business?
Digital transformation enables businesses to increase efficiency and value. It reduces operational costs, enriches every customer touch point, offers multiple opportunities to develop meaningful relationships with customers at scale, and provides data-driven insights that no human could ever dream of deducing.
The key word here is “at scale.”
Even the smallest companies have the ability to collect and process data for their customers and automate operations that would make our grandparent’s children believe in magic. But those who do it best get the lion’s share of the market.
For large corporations, the benefits of automation and top-of-the-notch data capabilities translate into millions of dollars per year. Here is what Matt Ryan, ex Senior Vice President at Disney and ex EVP Chief Marketing Officer at Starbucks, said during his keynote at the 1st Strategy Fest in 2021:
Something that I did at both Disney and then later on at Starbucks [is] to actually set up and build world-class analytics departments that then become the center of customer knowledge, market research, [and] anecdotal information on the sales force.
Two technologies drive at-scale digitalization:
- Artificial Intelligence (AI) and
- Massive data centers
Both of these demand so much computational power that it's simply impossible for single PCs or even servers to provide. This is where NVIDIA’s expertise comes into play.
Until recently, there were two programmable (=can follow specific instructions) processors:
Central Processing Unit. Intel’s main competency. Transistors focused on linear computing. For years, the sole programmable element of a computer.
Graphic Processing Unit. NVIDIA’s expertise. Transistors focused on parallel computing. Initially used for rendering 3-D graphics, GPUs’ parallel processing capabilities make them ideal for a number of projects, including artificial intelligence.
The problem with these processors is they’ve reached their physical upper limit of computational capabilities. The jump in computational power that businesses’ data functions demand is possible only through a new class of programmable processors:
Data Processing Unit. It’s today’s center of the computational arena. DPUs’ have multi-core CPUs with GPU architecture and more detailed programmability. They are ultra-efficient in data functions and constitute the building blocks of hyperscale data centers.
According to Jensen Huang, NVIDIA’s co-founder and current CEO since 1993,
[DPU] is going to represent one of the three major pillars of computing going forward.
In short, the demand for AI and the services of hyperscale data centers is rising. And NVIDIA’s strategy is to guide it, develop it and eventually capture it.
Omniverse’s rule of 3: NVIDIA’s strategy to conquer the metaverse
Omniverse is NVIDIA’s answer to every metaverse question, the 3D evolution of the internet.
NVIDIA Omniverse is a scalable computing platform for virtual worlds based on Universal Scene Description (USD), invented by Pixar. It is the solution to everything 3D-related, NVIDIA’s strength. Here are the top three objectives of NVIDIA’s strategy with Omniverse:
- Make Omniverse the go-to platform for Augmented Reality and Virtual Reality (AR/VR) development
- Sign up major partners to use Omniverse
- Create a strong ecosystem around Omniverse
And it targets three main audiences:
- Artists of 3D content
- Developers of AIs trained in virtual worlds
- Enterprises that require highly detailed simulations
This reveals a coordinated attempt to secure NVIDIA’s version of the metaverse by conquering the three major players of the ecosystem: the innovators and early adopters. The strategy takes a page straight from Geoffrey Moore’s book Crossing the Chasm treating the ecosystem as a huge network.
NVIDIA uses three tactics to implement its strategy:
- Offering the best simulation technology to the biggest corporations and supporting every business that builds applications on top of Omniverse. The goal is to make the platform the prevalent system behind every 3-D project.
- Offering individuals and teams collaboration tools for real-time interaction with partners and clients, world-building tools, a library of prebuilt objects and environments, compatibility with other sources of graphics and formats, and the leading game engines Unreal and Unity. The aim is to make creating and sharing 3-D content a piece of cake.
- Securing partnerships with major cloud service providers (CSPs) to adopt NVIDIA’s technology, architecture and essentially force the competition to use its technology, eliminating it.
Revenues from Omniverse will come mainly from three different sources:
- Project-based revenue
- Ecosystem-development revenue
- Transaction-based revenue
Project-based revenue will be generated from every business that wants to use Omniverse for their AR/VR development needs. Basically, every business that needs to develop its own VR/AR applications or services will become a project for NVIDIA. As a result, Omniverse will have a huge impact on NVIDIA’s topline growth potential in the future.
Ecosystem-development revenue will be generated from the development of the ecosystem around Omniverse. This will include a marketplace for 3D models, applications, and services, as well as an Omniverse Store where businesses can buy and sell applications. The more businesses there are in the ecosystem, the more revenue NVIDIA will generate from the platform.
Transaction-based revenue will be generated from the transactions that take place in the Omniverse ecosystem. This will include selling and buying digital assets and services in the marketplace, making in-app purchases in the store, etc.
NVIDIA relies its strategy on two of its core strengths: its unique expertise in GPUs developed over the last two decades and its large size that allows it to build infrastructure on a massive scale.
It combines these two to offer an Infrastructure as a Service business model (IaaS) for the enterprise market while simultaneously serving the consumer market. A two-fold and hard-to-pull strategy.
Key Takeaways #2: When your category evolves, double down on your capabilities
Just because your previous strategic advantage can’t be maintained, it doesn’t mean it’s worthless.
The benefit of being a category queen is that:
- You detect your category’s evolution early and
- You get to convert your advantage to serve you in the emerging new category
You have two enemies when your category evolves:
- Complacency: falsely believing that you can sustain your current competitive advantage
- Overreaching: abandoning your advantage and trying to build new capabilities from zero
NVIDIA’s Corporate and Social Responsibility (CSR) strategy
The leadership of NVIDIA is very strategic in its CSR approach.
They engage annually with a list of stakeholder groups, which they define as “ entities or individuals who can be affected by NVIDIA and whose actions can affect the company.” And this list includes:
- Employees and prospective employees
- Government/Public Policy Engagement
- Nongovernmental Organizations
- Research/Rating Organizations
NVIDIA’s approach to stakeholder engagement is systematic, professional, and based on the conviction that a company’s success is intertwined with the success of the communities it operates.
Here are the results of this strategy.
NVIDIA’s Diversity, Equity and Inclusion (DEI) strategy and initiatives
The company dedicates significant effort to its DEI initiatives by aligning them with its business objectives and priorities.
It created its DEI department in 2020 with a Head of diversity, inclusion, and belonging and a global diversity recruiting leader. Since then, the team has grown to over 20 people and engages in multiple activities to improve recruitment:
- Partnering with higher education institutions and professional organizations, recruiting at industry conferences
- Encouraging employee referrals (over 39% of new hires come from referrals)
- Increasing resources focused on women, Black, and Latino talent for senior technical and management roles
- Using bias-mitigating software to improve language in job descriptions and screening processes
- Providing guidelines for unbiased recruiting and a more diverse slate of candidates for consideration
- Having diverse employees engage with candidates from their communities and take part in recruiting events
Although the company is doing a lot to diversify its workforce, there is a significant improvement to be made, with men comprising 80% of the workforce and less than 2% being Black or African Americans.
However, NVIDIA has achieved pay parity for the past several years and is staying vigilant for a statistically significant disparity. The company is using a third-party firm to analyze its pay practices across 75+ dimensions and ensure that the results are trustworthy.
In 2022, NVIDIA ranked 1st on Glassdoor’s 14th annual Best Places to Work list for large U.S. companies and 5th on FOrtune 100 Best Companies to Work For.
NVIDIA’s sustainability strategy and environmental initiatives
The need to report and improve the environmental footprint of businesses is increasing year by year.
It’s to NVIDIA's benefit to decrease its system’s footprint because it directly impacts its clients' sustainability metrics. The main focus is on increasing the performance and energy efficiency of their technology in the following three pillars:
- AI Performance and Efficiency by using new-generation GPUs that consume much less overall energy.
- Supercomputer Efficiency with software optimizations, networking boosts, and cooling improvements.
- Gaming Efficiency by building thin, light, and high-performing laptops with optimal efficiency.
NVIDIA’s sustainability strategy’s second focus is accelerating climate action with multiple initiatives.
- The Earth 2 project that will predict climate change
- Supporting Global Climate Strategies with key partnerships to boost UN’s Sustainable Development Goals
- Nurturing cutting-edge startups with the Inception program through go-to-market support, expertise, and technology. The program has currently touched over 10,000 companies from 110 countries.
When it comes to Greenhouse Gas emissions, water usage, and renewable energy purchase, it’s hard to estimate NVIDIA’s progress year on year (YoY) because of changes in reporting requirements that inflate metrics compared to previous years.
However, it has doubled its renewable electricity purchased YoY and tripled the water reclaimed from other organizations.
NVIDIA’s strategy for responsible business and technology
A crucial part of NVIDIA’s priorities is the responsible development and use of its technology. The company structures its efforts around two pillars:
- AI’s societal impact
Cybersecurity is an enormous concern for NVIDIA, its partners, and its customers, so the company dedicates a significant portion of its resources to it. Its approach includes:
- Technologies, processes, and practices designed to protect systems and data from cyberattacks
- Cybersecurity safeguards built into product design, implementation, and production
- Protection of customer, employee, and company data
- Compliance with cybersecurity and data protection laws
In its second pillar of the responsible use and development of its technology, NVIDIA is committed to the advancement of Trustworthy AI (TAI) by carefully designing its scope and governance, applying a holistic risk management model, and anti-biasing its training data sets.
The company addresses the responsibility pillar from very early in the process: in its hiring and people management decisions.
It builds a diverse AI talent pipeline by partnering with educational institutions, developing an ecosystem of inclusivity and representation, and offering more opportunities to developers from emerging markets.
Key Takeaway #3: Attain dependable growth through safe, trustworthy, and sustainable business practices
You can no longer grow your business without any regard for its effects on the environment and the communities it interacts with.
The good news is that you can actually use your CSR strategy as a competitive advantage. The best way to do that is to integrate your CSR strategy with your business strategy or at least align CSR objectives with corporate priorities.
Businesses aren’t very familiar with sustainability and social responsibility.
You can use that to your advantage.
Why is NVIDIA so successful?
NVIDIA’s success has been the result of brilliant strategies and impeccable execution.
The company’s leadership makes a deep and accurate analysis of its competitive environment, develops a very clear and well-defined strategic vision, and addresses all potential strategic bottlenecks with policies that guide its culture.
NVIDIA has a strong innovation culture that is built upon five core values:
“Dream big, start small. Take risks, learn fast.” A value that urges employees to use first principles to guide their decisions, learn from mistakes and invent the future.
- Intellectual Honesty
“Seek truth, learn from mistakes, share learnings.” A value to adhere to the highest ethical standards, share what people believe, and act on it.
- Speed and Agility
“Learn, adapt, shape the world.” A value against complacency, making sure that nothing gets in the way of innovating.
- Excellence and Determination
“Maintain the highest standards.” A value that ensures focus on long-term success through striving for perfection and not simply being better than the competition.
- One Team
“Do what’s best for the company.” A value for fostering transparency and trust to resolve differences, improve and accomplish NVIDIA’s vision.
Growth by numbers