Distant customers are even further than the ones I illustrated. Those I illustrated were Tier-2 customers of the iPhone and PSP. The Tier-3 customers for those two do not even know about or do not even care about the iPhone and PSP. Remember, the DS targets a different market segment than the PSP and iPhone do. All three are part of the entertainment market, but the PSP and iPhone quite firmly sell to the technology-centric segment of that market. The DS, on the other hand, is primarily in the experience-centric segment, which is immensely larger.
What segment of a market your product primarily targets determines a great deal about where it can go. By focusing too heavily on a high-level segment of a market, your product will inevitably become niche. By focusing on too many market segments, you risk being jack-of-all-trades (ie. you please none in trying to please all). By focusing too vaguely, you make a product which has no clear purpose.
The ideal goal is to target as broad a definition of the market as possible, while not being so broad in definition that you get no customers. This is where "universal appeal" comes in, and is why Blue Ocean products work so well. While there is no good or service which has absolutely universal appeal (even water has alternatives), there are basic human wants and needs you can target and get the most out of if you target them well. The more pure the focus is on those wants and needs, the better your product will do. This is why the underlying philosophy of the DS has never changed, and has only ever been reinforced by Nintendo's efforts: to be useful and entertaining.