Nintendo's problem is they gave up. They conceded the market to Sony with the PlayStation and have never recovered. They made up their mind that they couldn't compete financially with Sony and now Microsoft so they decided to go with the idea of just offering something innovating that the other guys aren't doing.
Previously, Nintendo had always striven to be the best. The NES was a powerful system for its time and offered something no one had seen before: A gamepad with a directional pad. To this day, the d-pad is a requirement for video game controllers. It was an innovation that became a necessity.
The Sega Master System came along and was technically superior but couldn't compete with Nintendo's huge 3rd party support and stellar in-house games.
Sega decided to beat Nintendo to the punch this time and came out with the Genesis. It was 16-bit and easily beat Nintendo's NES hardware but Nintendo managed to hold their own for a couple more years until they unveiled the Super Nintendo.
Again, it was very powerful system for the time and beat the Sega Genesis in terms of hardware specs other than a slightly slower CPU. It always debuted yet another controller innovation which is now standard: The 4 button front buttons and shoulder button layout.
With the N64, it was the beginning of the end for Nintendo. While technically superior to the Sony PlayStation, they stubbornly stuck with cartridges and became more strict and charged more for licensing rights. 3rd party developers left in droves to never turn. Still, Nintendo innovated once again and gave us yet another feature which is now standard: Analog joysticks.
From here on, Nintendo virtually gave up. They gave it one last go with the Gamecube which had nice hardware specs and was on par if not slightly better than the PlayStation 2 but it was too late. 3rd party developers were already sold on Sony and people were buying the PS2 not only for games but for DVDs as well.
From there, Nintendo decided it wasn't worth competing. Their philosophy was to never sell a console at a loss like Sony did in order to gain market share. They gave up and just started to focus on pure innovation but cheap, affordable hardware. The Wii was unexpected success due to the controller but it was rumored that the Wii was going to be Nintendo's last system and they were set to leave the hardware business if it didn't sell.
Even with as popular as the Wii was, it was a weak system and none of the 3rd party developers came back. They couldn't put their flagship titles on the system because it wasn't powerful enough. The system was littered with shovelware and it became known as a system for casual gamers.
The Wii U is Nintendo's current version of the Gamecube. It's another attempt to play catch up and win 3rd party developers and hardware gamers back. The hardware is decent but it's only 'on-par' with the last generation of consoles. In only a year, they are once again going to be left in the dust with the new systems from Sony and Microsoft are unveiled.
So after that wall of text, you can blame the Nintendo 64 and Nintendo thinking the industry would follow them no matter what they did. They stopped trying to have the best hardware will providing new innovation and instead went with innovation only. The Wii U is heading down the same path as the Gamecube and has been poorly marketed and isn't selling well. Consumers are confused on what it is and those who do, don't see a need if they already have a 360 or PS3.
It's important for Nintendo to do all it can in 2013 to get every major title 3rd party title it can. They need to show that their system can handle A+ titles and sell well on their system.
