Instead of further fuelling the recent upsurge in "HD vs. Wii" that has occurred, today I'm going to teach us a lesson from the past: Nintendo's decline and collapse until the company went bankrupt and its assets sold off to the victors Microsoft and Sony.
Except that didn't happen. Nintendo went against expectations and almost overnight rose to the top with the Wii and DS consoles, leaving the others to fight over the lesser theoretical prizes. While this may seem miraculous and unpredictable, in reality it was just one highly informed decision, already stated above, that caused this: going against expectations.
In the beginning, Nintendo created many new, risky franchises that often didn't have a dedicated following of the genre to target development towards: Mario, Metroid, Zelda, Mario Kart; even Pokémon. All of these games created their own market which then religiously followed those franchises and all similar, clone games which were done well enough to appeal to the conventions set by the first game. Third parties soon joined the platforms these games were on, since in between the releases of these core franchises there was a desire for equally good titles.
In this way, the NES/SNES and Game Boy became market leaders in their generation. Since Nintendo's success was based on these core titles, they knew they could achieve instant sales by tweaking the old conventions or adapting them to new or better technologies (e.g. analogue stick or colour screen). The technologies chosen were closely tied to the core franchises (e.g. analogue stick made for Super Mario 64*). To carry on delivering these technologies, Nintendo had a policy of making new consoles which incorporated the often single new thing and the requisite upgrade in processing power. The N64 and Game Boy Advance were obvious end-products of this process. However, the tight focus on appealing to the existing market caused them to ignore other emerging technologies (CD, motion-sensor camera, online gaming) which couldn't be used to directly improve, say, Mario, but could have been used for real innovation. These technologies were seized upon by new entrants as the ticket to instant success (e.g. PS family EyeToy, Xbox family online) because Nintendo left the opportunity behind.
*Yes, I believe it was this way around. Nintendo is a software company and develop hardware to serve the software rather than the reverse. This mindset prevented them from going under during their worst time: the Gamecube. In contrast, even winning Sony or Microsoft consoles focused on software serving hardware and this caused them to lose real money when their hardware wasn't taken advantage of properly during the first few years.
So, Nintendo entered a decline. Their core market remained loyal, of course, and the best way for them to achieve sales to rival Sony and Microsoft still appeared to be to release more and better Mario or Zelda games. This was an illusion, because the more they released, the more fans demanded from each game in order to make it worth it and the less room remained to innovate without angering the fanbase. Luckily for Nintendo, they had superior game design skills which allowed them to carry on with this cycle right through the Gamecube generation. The first signs of weakness were there: a new Mario (Sunshine) "not being good enough" despite improving on 64 in amost every way, the entire fanbase getting angry at a innovative change in graphical style in Zelda (Wind Waker).
Still, sales continued to drop over the lifetime of the Gamecube. Nintendo's 'solution' was an attempt to return to what they thought made their games successful before: Zelda Twilight Pincess all but reversed the innovations of Wind Waker in an effort to make a third Ocarina of Time like game. As we can see from the reviews of Twilight Princess, they thought it was a great game but in some ways wasn't as good as Ocarina, even though it objectively exceeded it in every way.
What we are seeing here is where the fanbase wanted was "What we want is more Mario and Zelda!" but what they needed was a fundamental and initially disruptive change.
Case study 1: Me. When the DS was first announced, I didn't like it. I thought the name was stupid ("I want Game Boy Ultimate!") I thought two screens were ugly. I thought touch and mic were pointless. I actually wanted a PSP-like design with a new Mario, Zelda, 2D Metroid and Pokémon game at launch. What I got was Kirby Power Paintbrush. I thought Kirby with touch was stupid, but it was one of the best games I have ever played, just due to the drawing-paths mechanic. What my parents got (when I never expected them to even know the DS existed)was Brain Training. I mocked it at first.Now it's a combined 20m selling franchise.
Apparemtly that wasn't enough of a lesson. So...
Case study 2: Me again. When the Wii was first announced, I didn't like it. I thought the name was stupid ("I want GameCube 2!") I thought remote were ugly. I thought Miis and the motion sensing were pointless. I actually wanted a GC-like design with a new Mario, Zelda, 3D Metroid and Pokémon game at launch. What I got was Mario Kart Wii. I thought Mario Kart with handheld Wheel was stupid, but it was one of the best games me and my parents have ever played together, just due to it being more accessible for them using the Wheel mechanic. What my parents got (when I never expected them to even know the Wii existed)was Wii Fit. I mocked it at first. Based on initial sales data, it's likely to be one of the best-selling games of all time.
So, by departing from what fans thought they wanted, Nintendo saved themselves from a GC2 that sold 10m and bankrupted the company, and from a GBA2 that lost to the superior technology of the PSP. The key is that to carry on making what the fans want is successful in the short term and damaging in the long term.
As a warning to Xbox and Playstation fans everywhere, I would like to add that the same applies to you. If you demand more and more expensive technology and more sequels to GTA, Halo, Final Fantasy, Call of Duty and Metal Gear, that's exactly what you'll get, but companies that appeal to a broader audience and innovate will eventually resign your demographic to Gamecube-like proprotions and I don't know whether Sony or Microsoft have the willpower to deviate and rejuvenate themselves like Nintendo did.
It happened to us; don't let it happen to you.
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