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It's not a complete failure in Japan though; it's mostly in the west where it's a disappointment.
Let's not forget that the global installed base is still in the same ballpark as X1.

I'm not sure if pumping out big-budget 1st party games is the solution though. Making new versions with more buttons is probably also not worth it (as it will also confuse the already small market).

I'd say:
- Release an adapter for SD cards (or drastically lower memory cards).
- Update the PSP and PS1 emulation of the Vita so that it will run PSP/PS1 games at Vita's native resolution. And market this ability ("Play the best PS classics on the go; looking better than ever before!")
- Keep attracting 3rd parties (including indies) to release modest-budget titles for it. There's still a good market for those on Vita.
- Make sure that all the niche japanese games are localized, and market this to position the Vita as a gateway to japanese gaming.
- If Nintendo are planning to release titles on smart-devices, have Nintendo to release those on Vita as well
- Open up software development completely; including the ability to side-load apps, and maybe an easy path for porting Android/iOS games.
- Offer a service for western developers to easily localize games for Japan (its biggest market).

But it won't ever become a big mainstream success. Times have changed, and it can only be a great niche device for enthusiasts at best.
Personally I still get a lot of enjoyment out of my Vita though!