TLDR version - Hardware is trying to follow Wii 'revolutionise the way we play' vision, Software is trying to be Gamecube 2.
I think we can all agree the gamepad has been a disaster for Nintendo. It serves a minimal function in most games, adds a huge cost in system production, increases the price of the system for consumers and alienates a huge percentage of the market with its awkward unintuitive design. (Sure, off-TV play is handy, but Vita sales should be a fair indication the market doesn't think it's worth hundreds of dollars for.)
Now Nintendo aren't stupid. They would have known of all of these problems prior to release but they must have had a reason for putting it in place regardless. I assume they initially planned to advertise a 'new' way to play Nintendo games using touch controls that consumers would find accessible and easy to understand.
The most obvious way to show this off would have been a touch exclusive 2D Mario game. Advertising could have focussed on this new 'touch based' way to play making it more obvious that this is a NEW Nintendo console. It would have convinced potential buyers that this new system will provide new experiences and not simply 'more of the same but slightly prettier' than what they already have on the Wii.
I think this vision has some merit, and you get an idea from games like Yoshi's Fruit Cart and Balloon Trip how it could have worked on a larger scale. An easy and intuitive control method to create simple titles that everyone can pick up, as well as more complex games. This would have made it a true successor to the Wii in terms of hardware philosophy.
But this vision of creating a new touch based way to play was neglected by Nintendo's internal software teams. Somewhere along the line they must have decided that creating games on a touch screen was not a viable option or one they wanted to work with. So what you're left with is a device that has thrown most of its eggs in focussing on a dual screen touch based interface, which no developers want to work with. Not even internal teams. Mario Kart 8 has a horn. We've seen nothing from DKCR, Smash or X to suggest the touch screen contributes in any way. How can you expect third party developers to come up with anything when the team that supposedly asked for it can't think of anything?
I think going forward Nintendo have to engage software developers more heavily in hardware design. Especially their own. Iwata is ultimately responsible for making sure communication between R&D and his software teams remains open. He has failed. He has run a hardware division that is in open conflict with their software teams.
