Like I already said in this thread, Sony ceased to compete because Move had failed to gain any traction and Microsoft's Kinect was destined to be a fad like the PS2 EyeToy; it wouldn't take long until the limitations became apparent; aside from minigame compilations, dancing and fitness, there's really nothing else that can be done with controller-free gaming; on the other hand, the Wii was versatile as Mr Khan explained in a post in this thread, it's not limited to motion gaming or only one type of controller. Plus third parties would neither support Sony's or Microsoft's devices which would create a battle between first party talent; a battle that plays strongly in favor of Nintendo. As for smartphones and tablets, they have no motion controller and no local multiplayer on the same screen. Put all of this together and you are looking at a situation where Nintendo gets a lot of market space on their own.

Why would people who play free games pay for Nintendo products? For the same reason they bought a Wii, even though flash game portals on the PC were already a popular thing before the launch of the Wii. The PC didn't offer what the Wii did, so the Wii was worth buying. You still have trouble to grasp that not everything you label as casual games is equal. Maybe it begins to click when I tell you that not every hardcore gamer plays FPS games and JRPGs, not everyone likes both. Or what if I tell you that playing one kind of game doesn't rule out playing another kind of game? Would it also be so hard to believe that people can play games on more than one device?

But since this response will inevitably lead to you screaming about how people didn't buy the Wii U despite the console having all that Wii stuff, let me once again point out that the Wii U is the Gamepad. People don't want it. And beyond that, the Wii U doesn't scream upgrade over the Wii; the Wiimotes and Nunchuks are the same, sequels were more often than not phoned in; that kind of treatment doesn't send the message that the Wii gamer is valuable to Nintendo. Take Wii Sports: It was the biggest IP on the Wii; on the Wii U it got relegated to a remake that was released in pieces as a digital-only title to test a new pricing model. That's not how you handle a flagship game. Imagine Microsoft breaking Halo down like that, or Sony doing the same to Gran Turismo; they would be called nuts for doing such an insane thing, but when it comes to Nintendo, the blame gets directed at the lowly casuals for not putting up with that shit.

Wii got Fifa games, which have been offering 20 or 22 player matches for many years on other platforms.

I did and it's right there. Since there are no real challengers, Nintendo doesn't need to reinvent the wheel completely, but just needs to realize the full potential of the Wii idea by refining it and releasing new IPs that create new demand. While that wouldn't be as blue ocean as the original Wii (since the hardware is an evolution and only the software would break new grounds), it would still be a sufficient strategy that leaves Nintendo without any direct competitors, thus ensuring profitability. Simply put, there was no reason for Nintendo to abandon the Wii, because there were no serious threats emerging.

Here's an excerpt from the Wikipedia page:

http://en.wikipedia.org/wiki/Blue_Ocean_Strategy

Kim and Mauborgne argue that while traditional competition-based strategies (red ocean strategies) are necessary, they are not sufficient to sustain high performance. Companies need to go beyond competing. To seize new profit and growth opportunities they also need to create blue oceans. The authors argue that competition based strategies assume that an industry’s structural conditions are given and that firms are forced to compete within them, an assumption based on what academics call the structuralist view, or environmental determinism. To sustain themselves in the marketplace, practitioners of red ocean strategy focus on building advantages over the competition, usually by assessing what competitors do and striving to do it better. Here, grabbing a bigger share of the market is seen as a zero-sum game in which one company’s gain is achieved at another company’s loss. Hence, competition, the supply side of the equation, becomes the defining variable of strategy. Here, cost and value are seen as trade-offs and a firm chooses a distinctive cost or differentiation position. Because the total profit level of the industry is also determined by structural factors, firms principally seek to capture and redistribute wealth instead of creating wealth. They focus on dividing up the red ocean, where growth is increasingly limited.

Blue ocean strategy, on the other hand, is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players. This is what the authors call “reconstructionist view”. Assuming that structure and market boundaries exist only in managers’ minds, practitioners who hold this view do not let existing market structures limit their thinking. To them, extra demand is out there, largely untapped. The crux of the problem is how to create it. This, in turn, requires a shift of attention from supply to demand, from a focus on competing to a focus on value innovation – that is, the creation of innovative value to unlock new demand. This is achieved via the simultaneous pursuit of differentiation and low-cost. As market structure is changed by breaking the value/cost tradeoff, so are the rules of the game. Competition in the old game is therefore rendered irrelevant. By expanding the demand side of the economy new wealth is created. Such a strategy therefore allows firms to largely play a non–zero-sum game, with high payoff possibilities.

It definitely isn't red ocean either due to the lack of competitors. It's quite a funny situation when you think about it. All that unaddressed demand out there, but nobody wants to make the games to grab it.

I said make new IPs to create new demand. Pretty much every new IP that other publishers make try to feed off the already existing demand. For example, another FPS that plays almost identically to all the other FPS games out there does not create new demand. Of course there's no guarantee that every new Nintendo IP would be popular, that is the thing that comes with blue ocean thinking; it is unknown if the demand is there and how big it is. But the benefit of this value innovation is that the investment doesn't have to be high, so the financial risk is low. Compare that to the new IPs other publishers put out, they require $100m+ investments (including marketing) nowadays.

Read the red ocean part of the excerpt I posted. Differentiation such as the Gamepad is very much a part of red ocean thinking, just like Kinect 2.0 for Xbox One was. Both things were meant to give them an advantage over the competition, and in both cases the goal of the companies was to have the same games as the competition, just with "Better with Gamepad" and "Better with Kinect" labels, so to say.

Compare that to the Wii which didn't aim to play the very same games as the other players in the industry. Processing power may have outruled direct ports from the PS3/360, but it wasn't like Nintendo asked companies to port PS2 games over (unlike with the Wii U where they proudly presented all the ports they were supposed to get).

Why buy a separate console? Because the games are just that good. (if, indeed, that is how you feel).

By your logic, why did anyone ever bother with consoles? Gaming computers were a thing at least from the mid-eighties, and they had good games, often broadly acclaimed.

To answer my own rhetorical question: people bought consoles because Nintendo made games that were that good. Nintendo made them, and others followed, first on the NES and then competitors emerged, Sega arriving and Atari returning for another shot.

In a world where the relevance of consoles is again in doubt, we need another Wii now more than ever. A world where it doesn't matter that you already have a surface tablet and an iPhone: you need X (and i don't mean the new monolith soft game, badass as that's going to be)

I did and it's right there. Since there are no real challengers, Nintendo doesn't need to reinvent the wheel completely, but just needs to realize the full potential of the Wii idea by refining it and releasing new IPs that create new demand. While that wouldn't be as blue ocean as the original Wii (since the hardware is an evolution and only the software would break new grounds), it would still be a sufficient strategy that leaves Nintendo without any direct competitors, thus ensuring profitability. Simply put, there was no reason for Nintendo to abandon the Wii, because there were no serious threats emerging.

Here's an excerpt from the Wikipedia page:

http://en.wikipedia.org/wiki/Blue_Ocean_Strategy

Kim and Mauborgne argue that while traditional competition-based strategies (red ocean strategies) are necessary, they are not sufficient to sustain high performance. Companies need to go beyond competing. To seize new profit and growth opportunities they also need to create blue oceans. The authors argue that competition based strategies assume that an industry’s structural conditions are given and that firms are forced to compete within them, an assumption based on what academics call the structuralist view, or environmental determinism. To sustain themselves in the marketplace, practitioners of red ocean strategy focus on building advantages over the competition, usually by assessing what competitors do and striving to do it better. Here, grabbing a bigger share of the market is seen as a zero-sum game in which one company’s gain is achieved at another company’s loss. Hence, competition, the supply side of the equation, becomes the defining variable of strategy. Here, cost and value are seen as trade-offs and a firm chooses a distinctive cost or differentiation position. Because the total profit level of the industry is also determined by structural factors, firms principally seek to capture and redistribute wealth instead of creating wealth. They focus on dividing up the red ocean, where growth is increasingly limited.

Blue ocean strategy, on the other hand, is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players. This is what the authors call “reconstructionist view”. Assuming that structure and market boundaries exist only in managers’ minds, practitioners who hold this view do not let existing market structures limit their thinking. To them, extra demand is out there, largely untapped. The crux of the problem is how to create it. This, in turn, requires a shift of attention from supply to demand, from a focus on competing to a focus on value innovation – that is, the creation of innovative value to unlock new demand. This is achieved via the simultaneous pursuit of differentiation and low-cost. As market structure is changed by breaking the value/cost tradeoff, so are the rules of the game. Competition in the old game is therefore rendered irrelevant. By expanding the demand side of the economy new wealth is created. Such a strategy therefore allows firms to largely play a non–zero-sum game, with high payoff possibilities.

No serious threats? Sorry but Apple and Android represent a more serious threat to Nintendo's business than Sony or MS ever did. 

A blue ocean in the modern context would have to be something dramatically different from even the Wii, like a sex/porn console or a console aimed specifically at senior citizens or something (and even that might not be far enough).