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RolStoppable said:

Smart devices are a factor in the contraction, but they aren't as big of a factor as the vast majority of people believes. Sony's PSP sold in part because of its multimedia features and piracy (emulators), but smart devices absorbed all of that functionality. That hurt the Vita, but what remained is handheld games because buttons on a dedicated handheld vs. touchscreen controls on smart devices is a significant difference for gaming. Vita didn't deliver on games and that's what really did it in.

3D on the 3DS was a lot of self-inflicted damage on Nintendo's part (already covered in my previous post). Where smart devices had an influence on the contraction is non-fictional games. Non-fiction means that there is no unique IP to a game, so no story, characters and world. The DS had Brain Training, cooking guides, sudoko and its variants; all that could be easily replicated and replaced by smart devices. But fictional games like Pokémon aren't threatened by smart devices, so Nintendo hardware remains a necessary purchase.

Another big factor in the contraction of Nintendo's business specifically is that both the Wii and DS were phenomena. A phenomenon draws in lots of people who aren't regulars to purchasing video game hardware and software. A phenomenon is incredible popularity. This is probably best explained with the Pokémon series. Red and Blue were a phenomenon; they were so popular that they extended the life of the very dated Game Boy hardware. Sequels could never live up to this level of popularity, that's why Red and Blue sit at ~30m copies sold while the rest of the series has stable sales in the 15-20m range. There were no noteworthy mistakes made with the sequels, but a contraction happened regardless.

Similarly, Nintendo more or less had to have a contraction after the Wii and DS (over 250m units of hardware sold in a single generation, that's 50% more than Sony's best), but that alone doesn't explain the drop to ~85m, because a console is more complex than a single game series; new hit IPs can make up for the decline of old IPs. That's where self-inflicted damage comes into play again. During the Wii U and 3DS era, Nintendo wasn't motivated to create as many new IPs as they did during the Wii and DS days. Nintendo wasn't even motivated enough to make a sequel to Wii Sports, or in the broader sense, to continue with motion controls as the Wii U Gamepad wasn't suited for such games. This is the biggest factor in the Wii U's demise, that it never resembled anything close to a better Wii. It wasn't an upgrade.

Wii Sports players certainly didn't turn to smart devices for motion control games, because that would make no sense. What happens in a situation where no sufficient new product is provided is that people buy no new consoles and games. This is probably best explained with the Super Mario Bros. series. Super Mario Bros. 1-4 (Super Mario World is SMB4, released in 1990 in Japan) all sold very well (so did Super Mario All-Stars in 1993), but then Nintendo didn't make a new game until 2006 (New Super Mario Bros.). It's things like this that create dormant Nintendo customers; it's not a lack of time or money that leads to no sale for Nintendo, it's the lack of product. Once Nintendo releases a proper product again, analysts and forum goers wonder where all the consumers are coming from all of a sudden. This is what is happening with Switch right now.

AR and VR won't make an impact. Switch is what you are looking for when it comes to the next video game boom. This console is only getting started, you've seen nothing yet.

I think, throughout, you make a very solid case that I largely agree with: my deepest exceptions are bolded. I don't think smart device impacts can be reduced to functionality overlap: there is a capital cost factor. An iPhone costs more than twice as much as a Switch, and that gets refreshed every 6 months. The Wii debuted shortly before the iPhone and right at the incipient stages of the smart device boom. While they pose no encroachment on the Big 3's IP, they put considerable on wallets. When that is compounded by considerable functionality overlap, my concern is only exacerbated. How do these companies compete with a prospective Apple Box that streams all of the same or similar content? Nintendo's move into the mobile space was a brilliant move to make inroads into this progressively blurred territory. Have you ever aligned graphs of smart device sales with those of videogame consoles? The trend is horrfiying (to me). This could lead into a wealth inequality tangent, but you likely know how that also factors in.

With regards to AR/VR? Do you mean they won't have an impact on Switch or the industry? The former is debateable, but the latter is most certainly not. I don't know what your implication was, so I don't want to be presumptuous.