Generally speaking I think this is a big part of Nintendo's problem too. There just isn't a need/or a desire from the general audience (outside of Nintendo fans) for three consoles in the industry. 

Never really has been. You had the Turbo Grafx 16 for example that was the odd man out in the 16-bit "wars". The Saturn and Dreamcast that Sega tried to desperately shoe in into the business. Then the GameCube. Consistently speaking the "third wheel" console just never works, even if it is a pretty good system. The Dreamcast wasn't terrible, neither was the GameCube either really. 

By and large I think the audience just wants one main platform that has all the majority content that they want. No fuss. But you want to have one decent competitior to keep that lead console maker honest with competetion. 

There just isn't a need for a third. The moment Microsoft came into the business and decided to hang around, is the moment the console business became too crowded for Nintendo. 

Now of course yes, the exception to the rule is the last console cycle where the Wii was able to break out as a blockbuster hit. But it was so different from the other consoles and had such a wide open path in its early years with no competetion for casual gaming. That and it's very difficult to "repeat" one genius idea like the Wiimote, it isn't repeatable, it's catching lightning in a bottle. 

Even with that cycle, really the PS3/360/Wii all selling well maybe only happened for about 2-3 years tops, because the PS3 was anemic it's first two years or so, and Wii was weaker later in its life cycle too. If Microsoft would get out of the business (they don't even need it, which is kind of the frustrating part), then Nintendo would be in a much better position. 

But generally speaking in the game business there's only 2 fairly viable game systems at one time, and even there usually one is notably the "alpha" console compared to the other one. 

To me they are very much needed. I couldnt imagine a gaming industry without Nintendo hardware.

Last gen still clearly proves you wrong, but that's just my opinion.

The original Xbox clearly did just as badly as the Gamecube did. In comparison to the PS2's total dominance, one could have used your same argument that there's only room for one console maker.

Me neither, unfortunately though we're in the minority. The game business traditionally has not supported 3 console platforms at once. 

Look at last gen.

The XBox probably would've hit 30 million or more had MS allowed it to keep going. Its sales were actually increasing as the gen went on. 

If you need a controller miracle to make three consoles work ... then it simply isn't a feasible, repeatable formula. 

Asking your R&D to come up with a revolutionary concept every 5-6 years like its clockwork just isn't realistic, those types of ideas are maybe once every 20 year type of things. 

The industry needs something new to keep going strong.

Even if we isolate the last console cycle ... from 1985 to today (that's almost 30 years), three consoles have only been successful at the same time for maybe 4 years of that period?

Wii + PS3 + 360 were all selling fairly well from 2007-2010, that's about 4 year period out of 30 years. That's not exactly great odds for a three console setup.

True 3 means one will always be the runt of the litter. By the way ninty does not need its own hardware to make great games, sooner or later they and their fans will have to accept and embrace that.