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Soundwave said:

Nintendo thought Nintendogs + cats would carry the 3DS early on because Nintendogs sold 10+ million on the DS. 

They thought NSMBU + Nintendo Land (mini-game party compilation) would carry the Wii U, because that was in part the formula that sold the original Wii. 

What they didn't count on was that audience bailing out of the fad bubble. 

That's what happens when you bet the farm on such an audience, it's very unreliable. 

That's part of the reason. But They were placing too much of their bets on third parties carrying the launches of those consoles. Nintendo hardware is entirely driven by the company's own first party software. If Nintendo isn't putting out a big release at launch, the system suffers. Sure, Nintendo didn't realize that Nintendogs and New Super Mario Bros. weren't going to wow people the second time around. But that's more due to a lack of new ideas causing audiences to leave than the audience itself. Nintendo was pretty creatively bankrupt during this period, trudging along with a greatest hits album of what worked before, rather than moving forward with fresh concepts or ideas. It took until Splatoon for them to realize that.