Third parties sold great on the NES and SNES, even the N64 had a few million selling third party titles.
It's when MS moves into the business and third parties and consumers now had the choice of Nintendo's more family-friendly ecosystem or two more teenager-market driven platforms, they opted to go with Sony/MS as it suited most of their core IP better. Sony and MS also market far better.
If MS had stayed out of the business Nintendo would probably still today be getting decent/good third party support basically by default, but with Sony *and* MS as viable options, third parties just don't need Nintendo, two's company, three's a crowd.
It's actually kind of a shame MS entered the business because really (and I like MS fine as a company), they don't need the money, the game business is just peanuts for them. Nintendo needs it badly and as mind-numbingly stubborn and out of touch as they can be, it is kind of a shame to see them basically locked out of the console market they basically built.
