Sony's biggest mistake was thinking the Playstation line sold so well simply because of the brand, when it was a combination of Sony's hard work and luck in the other guy's screwing up.
The PS1 was selling well due to Sony making the system work so well, and they already had decent third party support. Yet they didn't make the Saturn cost so much, nor made Nintendo stick with a format with a horrible profit margin.*
The PS2's DVD drive was a good move. It helped the system sell well while the library picked up. Yet Sony didn't make Nintendo and Microsoft offer systems that lacked anything truly compelling over the PS2,** aside from the Xbox's PC-like structure attracting western developers. Plus they didn't make GTA III sell so well it just happened.
Incidentally, that combination is the real reason for Nintendo's handheld dominance (they didn't make the Game Gear have bad batter life, nor made Bandai not take real advantage of the Wonderswan). Yet Nintendo seems to remember that, as they made a radical move with the DS, and worked hard to prove the control scheme, while Sony spent too much effort on a great launch library, while forgetting the next year, and didn't offer anything truly compelling over the iPod, which was the real reason for all the media abilities.
Now we have the 7th gen. Katuragi's statement about 5 million with no games said it all. Whether or not it's true for any PS system is irrelevant.*** It showed they were not going to work as hard on their games as they should, and of course thinking the PS line would sell no matter what. So while they did luck out with Microsoft making a rookie engineering mistake with the shoehorned GPU placement in the 360, Nintendo did their own hard work (even though it's not the hard work some would like****), and are reaping the rewards.
*Even without FMVs, FFVII would likely had to be on 2-3 carts, and there would be no way Square could sell that at $60 and even make a profit. That was why CDs were so compelling.
**Which also shows that few consumers and developers are truly graphics whores, Factor 5 being a notable exception.
***The PS2 did come close, where The Matrix sold a lot of PS2s, especially in Japan (Onimusha was the first PS2 hit, which came out nearly a year after launch). Yet Sony didn't have the lack of sense to actually tout that back then.
****I know Wii Fit seems like a slap in the face to the hardcore, but Nintendo didn't wave a magic wand and make casual games so profitable. They are just using that fact.
A flashy-first game is awesome when it comes out. A great-first game is awesome forever.
Plus, just for the hell of it: Kelly Brook at the 2008 BAFTAs








