Reason 1: Selective memory. The PS3 needs proper acknowledgement and it was a failure. It couldn't win its generation despite Sony buying lots of market share. If you look at it in the most superficial way, then the PS3's sales numbers suggest that the console didn't do bad in comparison to the PS1, PS2 and PS4, but once you proceed to the next layer, you begin to realize how huge the difference is.
Reason 2: Nintendo's inability to understand their own position and at times deliberate denial to comprehend it; this is how they knocked themselves out repeatedly. Nintendo wouldn't have a problem to compete, but their developers don't seem to like the terms and that in turn makes Nintendo fail to realize their potential. Remember, this is the company who sits on a 30-year-streak of domination in the portable console market (in other words, since its inception), so success is not something that is tied to luck for Nintendo. Here's an abridged, but still kind long version of how Nintendo gets it right and wrong:
The N64 used cartridges as its storage medium, so production costs of copies required a higher financial investment for third parties; the N64 had a far lower amount of games than the PS1 which it lost to. The GC switched to an optical medium and eliminated the problem of the preceding generation; its total game count went up by ~50% in comparison to the N64, but its hardware sales went down by ~50%, again in comparison to the N64. The conventional wisdom always dictates that Nintendo needs to appease third parties more, but sales data completely contradicts that notion. This is why Nintendo looked beyond only two generations to find a fix for their declining home console sales and came up with the Wii. The gist of it is that it was never the loss of third party games to other consoles that did the major damage to Nintendo's sales, but Nintendo's oversights in first party game development.
What made Nintendo big in the first place? Their DNA as an arcade game company, from Donkey Kong to Mario Bros., proceeding to simple sports games (look it up, titles like Golf, Tennis and Baseball were notable hits on the NES) and culminating in Super Mario Bros. which made Nintendo a household name worldwide. All the SMB games sold like hot cakes and moved Nintendo hardware, then on the SNES Donkey Kong made a huge comeback too in the form of another 2D platformer: Donkey Kong Country. At the time SMB and DKC were Nintendo's biggest brands; the Nintendo 64 didn't see a sequel to either series. It seems completely absurd that a console manufacturer would voluntarily forego to make sequels to their biggest games, but that's what Nintendo did. With the GC, Nintendo went another step further and wrecked the replacements for their former biggest series. Neither Super Mario Sunshine, The Wind Waker or Double Dash!! could catch on.
The Wii was the necessary correction which is why it was so big as long as Nintendo kept making games for it. Wii Sports and Wii Play were tributes to hits of the early video game era; the Virtual Console gave recognition to the time before everything had to be 3D; proper sequels were made to key franchises like SMB, Mario Kart, SSB, 3D Mario, Zelda and DKC. For a few years it appeared as if Nintendo truly understood what the market expects from them and none of that had to do with third parties. But then Nintendo turned around and pretended that the Wii never happened and delivered the console that the conventional wisdom I mentioned two paragraphs above dictated. If Nintendo had cared the slightest bit about sales data, the Wii U would have never been conceived.
The Wii U was a bigger failure than even the GC and at the same time Nintendo's dominance in the portable console market didn't yield a lot of profits either, because there too Nintendo couldn't be bothered to consider sales data and decided to go all-in with stereoscopic 3D. During those dark hours Nintendo once again remembered what they should be about, so the NES and SNES Classic consoles were made. At no point was Switch a console that the major AAA third party publishers would have ever approved of, but that's exactly why Switch is such a big hit. Nintendo's place is not the one of playing PC games on a console, what the market wants and expects from Nintendo are the descendants of the arcade spirit.
Long story short, as long as Nintendo sticks with what they should be about, they can compete with Sony's level of console sales. The big question is if Nintendo's business side keeps their developers in check instead of granting them too much freedom.
Agree... the last bastion of arcade games in a dedicated videogame. great text. Nintendo must focus in their roots.