You don't think it was as simple as being disrupted by mobile devices and their software pricepoints? If "soccer mums" or kids can sink hours into free or $5 games, what hope do $50 games have? Not to mention Nintendo's stubbornness when it comes to discounting first party games.
Perhaps they could have done more on the software front, obviously they needed to really make successful local multiplayer games Wii Sports/Play style. They were successful with the handful of titles that did that, but they were few and far between and their poor third party relations meant they were never successful in convincing third parties to make the kind of games that can be successful.
So they needed third parties help, obviously the established third parties were too set in their ways to change completely, but Nintendo were too inflexible on getting new third parties to develop for them. All the console indies were on 360 and PC. Notice how the guys getting all the success on mobile aren't the big console pubs? Nintendo needed to be open enough to provide for a Rovio or a Zynga or an OMGPOP or a Halfbrick. It seemed forumites wanted to shake their fists at the handful of huge publishers, when what you really need to do if you want innovative software is to get indies developing on your system. Nintendo platforms are far and away the worst for that.
I think you're right as far as handhelds go. There was never really much question as to what happened DS->3DS and neither the PSP nor the PSV put up any real fight.
On consoles though, it was a combination of a huge number of things I'd have to spend hours to fully lay out. Chief among them in my mind are Nintendo's limited development bandwidth and bad third party relationships in spite of their reliance on them to sustain the market.
One of the unintended consequences of successful disruption is often alienation, confusion and contempt from your former competitors. In any other business, that's fine, because it leaves an entire market for you to exploit alone.
In consoles, however, you can never develop the kind of development bandwidth to sustain a healthy ecosystem by yourself, at least, not without growing unmanageably large and bloated. To a certain extent, you
need your competitors, because not only do they keep your customers from drifting away when you can't produce new product, but thanks to licensing fees,
they're your customers too.
Think about a steel producer that also owns a port for shipping that steel to foreign markets. The steel producer has their factories running 24/7 but they can only produce so much steel at a time, so not all orders can be met. Their customers need a steady supply of steel and if their needs aren't met, they're liable to go elsewhere, to other ports, so what does the company do?
The obvious answer is to open more factories. The trouble there is that this is easier said than done. Not only are they hugely expensive to build or buy, but you won't see a profit from them for years. Thanks to the realities of the cash flow situation, this can only happen so quickly.
Another answer is to allow other steel producers to use the port for a fee. It means that your customers get their orders filled, so they'll keep coming back and you at least get some money from the port.
The trouble is that these other steel producers are now both your competitors and your customers. You need to keep friendly with them, but they will always resent you because, as the owner of the port, you have advantages and cost savings that they don't.
So with the Wii, Nintendo is like the struggling steel producer that found a great new market selling a new type of steel, not as strong or as hard as the standard, but that sells on the basis of being prettier. By all the heuristics that decades of experience in making the strongest hardest steel possible have taught their competitors, this steel is crap, no good for building anything larger than a gazebo. Perhaps good enough for scaffolding, but no more. Common sense dictates that nobody in their right mind would ever buy this stuff.
But buy it they do, and in bulk. It turns out this market loves this stuff because it is so pretty and they can only get it from the one place. Soon the struggling steel producer is in a position where they can only fill a fraction of their orders.
Their competitors try to get in on the action, producing pretty steel of their own. The trouble is that they haven't done the research into why the steel is so popular in the first place and their efforts result in
even weaker steel that isn't even as pretty as the proper stuff and the new market rejects it outright.
Rather than share their manufacturing process so that the new customers' unmet orders needs are filled, the company simply ignores the situation, happy that its factory output is all being bought up and that they have no competitors in their new and lucrative market. The trouble now is that they are at capacity and cannot meet the needs of both markets at once, not alone.
The trouble is that it seems to the competitors that the port is slowly gaining a reputation as a place for pretty steel and that the port owner is set to abandon their traditional market . This is far from the truth, but the port owner doesn't communicate their intentions very well and the notion worries them.
Having failed at profiting from the pretty steel business, the competitors stop using this port.
Soon enough neither structural nor pretty steel orders are being met due to a lack of capacity. Frustrated customers seek alternatives, both in terms of structural steel and in terms of substitutes for pretty steel. The customer base dwindles and the company is left in dire straits.
The ultimate point of all that is that unlike a regular publisher (eg EA), Nintendo can't afford to alienate their competitors because of also being a platform holder. Trouble is that disruption often
leads to alienation, so they needed a plan in place to manage that.
My opinion is that Nintendo would have been better served creating a wholly-owned subsidiary that would sell Wii Sports/Fit/Play/Party while the traditional stuff was sold under the Nintendo brand name. But that's a story for another day.
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Well,
that escalated quickly.