Last gen, Xbox, PS2, and Gamecube were going after the same audience and (though PS2 easily won) cannibalizing themselves. It's like there was an all you can eat buffet but everyone was fighting over the steak. Nintendo just said, "Okay. You guys can have the steak. We'll feast on the prime rib, the chicken, the roast beef, the fish, and everything else you guys are neglecting." Nintendo got very fat on the leftovers.
They spoke about this well before the launch of the Wii. I said that they got lucky but, looking back, it was a really smart way to approach the market. Had they launched a Super Nintendo II and went after the hardcore, Nintendo would probably be in last place as Sony and Microsoft dominated. They shook things up. It wasn't a pass or a free ride. If Nintendo gets a free ride, they wouldn't have lost to Playstation two generations in a row. The Wii's success was the product of careful planning, cunning strategy, market friendly pricing, and embracing a new way of thinking.
Being bigger, stronger, faster--there's other ways to win a battle.