I think you're mistaken on the motivations and intentions of both Nintendo and (many of) its customers.
Oh, I think I've got them sorted well enough.
As you have pointed out, the traditional AAA-console market is in decline, with both players, Sony and Microsoft, doing poorly this generation compared to last. I suggest that there is little reason to expect a turnaround going forward. Broadly speaking, I think the root cause is a change in living-room dynamics, at least in the US, with Millennials less inclined to gather around a large screen in a particular room of the house (much like GenX ignored ever-fancier hi-fi stereo systems in favor of the Walkman) but we can set aside the reason for now.
It has nothing to do with mobility; if anything the mobile revolution has enabled the entire Millennial generation to plop themselves on their statistically probably large posteriors in the living room because they can do most everything, including socialise, from there. It's no coincidence that even the nomenclature of casual physical liaisons is derived from couch potato behaviour. The press would have you believe that most millennials are the modern jetset, always on the move and never at home, and that's utter rubbish. It might have some validitiy in metropolitan areas with active niche social scenes but it's definitely not the norm. If it were, the proportion of individuals amongst that range, aged 18 - 34, that are functionally obese would not be one in four.
The reason for the downturn is almost wholly economic. Despite the cheerleading of governments and central banks, the economic situation has not fundamentally changed, much less improved, from the depression that began in 2007 - 2008; it does look that way when entities can mark asset values to model rather than what their market value is (which keeps them notionally solvent), and governments are able massage unemployment figures by removing chronically unemployed people from the rates and there's no topline correction for those that have found work only as part-time or seasonal employees. The point is that, between the debasement of currency eroding purchasing power through unbacked emittance and the worst labour participation rate since the Great Depression, the macroeconomic conditions have not supported the growth this generation, despite an increase in population. Moreover, the current economic conditions have hit the Millennial generation the hardest. Even when taking account those questionable income and labour gains since the 'recovery' began, that age group has been the only one to consistently be a net negative.
It's not reasonable to expect a small company like Nintendo to enter a market with two gigantic established players that are both doing relatively poorly. If there were some kind of opening in that space, like being the discount good-enough vendor, MS or Sony (but presumably the bigger loser, MS) would be expected to do it much better than Nintendo. So ultimately all this talk of AAA ports, system specs, etc, is somewhat out of place. Nintendo abandoned that strategy after the Gamecube failed to recover the ground lost to the Playstation, and perhaps they did so too early but today it seems a little prescient.
Such rubbish. If you take a lead pipe across the knees and then forego footraces after, there's no prescience involved, it's a desire not to be humiliated. I agree that that was Nintendo's intent these last few generations, but the end result was the same: the erosion of its brand equity continued unabated, and the delta of that erosion has increased. Using the same analogy of a footrace, there's nothing wrong with losing a race; Sony did in the seventh generation because of the hubris that they knew better than the market, a problem exemplified by Nintendo's 'creativity', learnt from those mistakes, and proceeded to tattoo everyone in the eighth. There's nothing wrong with resigning a race, which is what Nintendo ought to have done a long time ago. What is very wrong is try and pretend that the race is something other than what it is, and then be surprised and even upset when the public at large doesn't share in one's delusion.
That's been the root of what you could call the "gimmick strategy"; basically, since we can't beat these guys at their game, what fun things can we do that they aren't doing that are cheap enough that people won't see it as a major investment and will be willing to play along. Motion controls were pretty fun, downside was the novelty wore off after a while, but a lot of people bought the Wii and had a good time with it. The Wii U did not work out for myriad reasons (bad concept, bad execution, whee!); the point is that there is not really any alternative to the gimmick strategy, despite the downside that it fundamentally discourages third-party development.
There is no alternative that keeps them in hardware, not at this point, you're absolutely correct. Where your argument breaks down is that Nintendo fundamentally needs to remain in the hardware race, when nothing could be further from the truth. Nintendo as a purveyor of software, its IPs, needs to be third-party to change its development philosophy for the better. They have gotten far too used to playing by their own rules, remaining stagnant and uninspired, relying on nostalgia and the fanaticism of its rapidly shrinking install base to keep from evolving.
On the other side, Nintendo's portables have been something of a bright spot historically, but there is a big crisis coming. Millennial parents will not have the weird hangups about kids-with-phones that prior parents have had, and Nintendo cannot compete head-on with phone hardware any better than they can with Sony/MS. The 3DS idea was a version of the gimmick strategy for portables; 3D displays were getting a lot of attention at the time, phones didn't have them, so 3D it was. Today though, when you look at a 3DS screen you're mostly just upset at how bad it looks compared to your phone.
So the Switch, now, is intended to replace the portable line, despite assertions to the contrary, and simultaneously disengage from the doomed home-console market. At the same time, the Switch is designed to be de-specialized; the tablet itself is basically a generic 7" Android nothing with some rails bolted to the sides. While Nintendo will not say so, the apparent reduction in custom manufacturing and engineering requirements might help the device be profitable at a lower unit total (although this is just my speculation).
You're talking across yourself. On the one hand, you say that Nintendo was correct not to fight competitors toe-to-toe in the console space, then say that it's a good idea for them to do so in the mobile space. That is
lunacy. As you mentioned below, there is a pricing disparity between those two spaces. In essence, what they've done is leave the space where the cost of their software is comparable to its competitors, and instead stepped into a space where they are hilariously undercut by competitors.
And there's nothing boilerplate about the Switch; I would estimate fully 50% of the components to be bespoke, if not more.
Analyzing whether the Switch will be successful based on likely unit sales or attachment rates might be asking the wrong question, because it compares the brighter past with the dimmer present, as far as the overall video game hardware market goes. I believe that if you compare the Switch to the prospects of an attempted "serious" home console from Nintendo, it looks a lot better. Likewise, if you imagine another generation of DS that has -- I don't know, maybe that mini projector gimmick Polygon was inexplicably raving about -- the Switch seems like it might be OK even if you might wish it were smaller.
Suppose for a moment that you have to travel on a Russian tugboat with a backed up septic tank. It will be cramped, smell terribly, and the company with be crude, occasionally drunken and consistently raucous, but it's probable nonetheless that you will not end up chucked into the drink to die a painful death of hypothermia. In that sense, you can certainly say that the Russian tugboat is an improvement to the Titanic, yet extrapolating that comparison out to all comparable ocean liners will not support that argument. Conversely, Nintendo
has consistently seen its install base erode generationally, so it's definitely not the wrong question at all to ask because it shows that the fundamental dissonance between gamers at large and Nintendo has less to do with any one piece of hardware and more to do with the their 'blue ocean', in reality withered tech, mentality that has pushed them further and further out of direct competition with the competitors in their traditional space.
Moreover, brand equity is not affected by products that do not exist, like the so-called 'serious' console. Nintendo rises or falls according to what it produces, and in the mobile space it has always produced cheap, underpowered hardware and it has always been successful because, aside from having few competitors, the primary value proposition of that hardware was cost, not portability; it's much easier to drop $150 - $200 on portable than $300 - $400 on a console. In producing the Switch, as Sony did when they produced the Vita, they have sacrificed that part of the value proposition for an experience that only a tiny portion of its prospective customers prefer over the cost savings at point of sale (and that's excluding the additional cost incurred to use it effectively as a home console).
What's in this for Nintendo's customers though? Why do people feel this childlike excitement (which, as a philosophical matter, you dismiss too lightly in your implicit fetishization of a strictly adult demeanor)?
I can only offer my personal perspective here, but I'm pretty excited. The best explanation I can offer is basically TV, particularly mobile-available TV like Netflix or HBO. I like watching TV on my big television, but I also like to watch on my iPad, maybe on the dining room table when someone else is using the TV, or maybe just because I have messy food, or in bed because I'm feeling lazy, or maybe while I'm on a trip somewhere.
And the reason I can't do that with video games comes down to two things: controllers and irrational pricing perceptions. Although some games are fun on touchscreens, really engaging my reactions requires the interface bandwidth of a physical controller. Add-on controllers for tablets are a failure because not enough users have them, so most games cannot be designed for them, so mostly people don't buy them because there aren't games for them (the well-known add-on dilemma).
That's a false syllogism. Other than relative size difference, there is no functional difference between watching it on your television and on your tablet or phone. Same absolute resolution, same audio information. There are distinct differences between the portable and tethered experiences for the Switch, that's not up for debate. That might not matter to you but I wager that it does to a fair few of the target audience. If someone really wants AAA on the go, then they want AAA, not a gimped version of it. That, in addition to cost, is what sank the Vita. Go back and look at the brand imaging for that device. It's precisely the same as the Switch: console class gaming on the go. What they got, and what you will get on the Switch, is console class gaming with a enough caveats and compromises to choke a full grown man.
Irrational pricing perceptions refers to the also-well-known fact that a $10 game on the App Store, even if it is very good and has high development costs, is perceived as very expensive simply because it is surrounded by free games, regardless of how bad those free games are. Unless Apple/Google adopt a sustainable pricing policy, which is unlikely and perhaps illegal, good games will continue to be buried in a sea of garbage, with the few bright spots being mostly very small development shops making interesting puzzle games on a low budget. Console makers get people to pay more simply by having a menu where everything is more expensive. It's a time-tested strategy that I support because I love games, I believe it's necessary, and I have money.
You can succeed with irrational pricing through product category consolidation,
so long as the fundamental experiential context of either of those feature sets is not compromised. That is the issue with the Switch. It ostensibly functions as both a portable and home console but does neither of them particularly well from a value proposition perspective.
Also, it's your prerogative to prefer one and to use your resources to foster one over the other. The issue is that you're arguing against a reality in favour of a preference, and that's a losing proposition from an economic perspective. The fact of the matter is that, as much as the software of the Switch may be superior to what is more commonly available on other mobile devices (that's an argument that I won't make, looking at the general popularity and profitability of that 'lesser' software), that is nonetheless their competition now, and we got a taste of what premium Nintendo's 'polish' can command in that space with SMR. If Nintendo has a hard time selling a $10 app to mobile casuals, how on Earth are they going to lure them into buying a $300 tablet and $60 games?
Since the Switch has bundled physical controllers and sustainable (aka high) games pricing it has the potential to be the next great portable-ish system, which is exactly what I'm looking for. Nintendo's first-party development adds a lot to this obviously, especially since they won't be splitting resources between the console and portable lines. Third-party portable-focused studios will be more interested in the Switch as the DS line is phased out, since they'll have few other places to go, so I have some hopes there as well. I'll continue to play AAA stuff on my PC. MS and Sony may release new home consoles in a few years but they will be underwhelming and nobody will care anymore.
High pricing is not sustainable on a forward basis, not when you're undercut by your competitors to that degree, and you're belief that irrational pricing will permit it to be so is unfounded. The pricing scheme that you prefer as a gamer is one that is tolerated by one that is dedicated to gaming as a whole. Nintendo is not going to win 'hardcore' converts on the basis of its hardware limitations, and they cannot command the premium from the same casuals that abandoned the Wii U after playing Wii Sports on the Wii for six months and letting the console collect dust. Irrational pricing only works if the buyer is sufficiently invested in your brand to the extend that
purchasing nothing is not an option. In this situation, those are the Nintendo diehards, and a decent majority of them were always going to buy the Switch regardless.
TLDR the Switch is the only way forward for Nintendo, it might sell less than previous consoles but it may be profitable anyway, and it's going to be fun.
I'm certain that you will find it fun. Whether or not it's sufficiently profitable to keep Nintendo hardware alive remains to be seen.
