Nintendo cannot team up with another company for hardware development and keep their traditional advantages. A big part of this "disruptive," "blue-ocean" strategy is being able to both reduce cost and differentiate at the same time, instead of having to pick one or the other. Nintendo's structure is designed to create an environment for continual disruption, thanks to the joint development of hardware and software in one organic process. This process allow the hardware and software to sell based on the seemlessly integrated experience they create and on their innovation and newness (or novelty if you prefer), instead of selling based on traditional cost-increasing differentiating factors like more powerful hardware or more content in games. When Nintendo says they will never leave the hardware business without also leaving the software business, they mean it. Hardware and software are the two halves of the same toy, and they cannot complete their creative vision without total control of both. They created Wii and Wii Sports at the same time, and we couldn't have Wii Sports without having the Wii exactly how it is. If they were developing as a third party, they would have to sell Wii Sports as a standalone game with special accessories, and Miis would have to be part of the game instead of part of the hardware, making it virtually impossible to turn the game into the mega-killer app it is today... and then they'd have to pay fees to the console maker! If they worked with another company to make Wii, that company would probably have its own vision for gaming hardware, and it would be impossible for Nintendo to design hardware and software with one group of people in one room all at once. You can see how important this is to Nintendo in the fact that Gunpei Yokoi, a supposed hardware guy, directed some mega-hits for Nintendo, including Super Mario Land. Meanwhile, Shigeru Miyamoto, a supposed software guy, was Yokoi's protege, and led the Wii development team! Its all the same process to Nintendo.
"[Our former customers] are unable to find software which they WANT to play."
"The way to solve this problem lies in how to communicate what kind of games [they CAN play]."
Satoru Iwata, Nintendo President. Only slightly paraphrased.
