Iwata isn't Nintendo's problem. It's Shiota.

Ko Shiota was responsible for hardware design. Rather than capitalize on the success of the Wii by evolving its motion sensing controls so that they could encompass gamepad functionality, a weird touchscreen controller with pitifully short battery life was coupled to a console lacking in sufficient storage to hold a typical consumer's collection of digital downloads. Giving only one player within a family a special controller is divisive not asymmetric gaming. The Wii U controller differs from an iPad or Vita insofar as it cannot be used outside of the house and cannot be gesticulated with in a similar variety of ways to emulate sports activities in the same way that the Wiimote managed. Low power and high reliabilty were goals of Shiota's team, but this resulted in a console underpowered for the majority of multiplatform next-gen titles contributing to a software drought that alienated prospective consumers. A delay in releasing their AAA system sellers threw away its head start of a whole year over the competition, leading to the next-generation being presented by the media as a two-horse race with Nintendo barely getting a mention.

Poor marketing isn't Shiota's fault, yet a few videos of day one installation problems were enough to put me off getting this entertainment device. It surprises me that the console needs to know more than just your Wireless Password as it could use your IP address to work out what Country you were in and what the Date and Time and Local Daylight Savings were. Furthermore, it is troubling that it shipped essentially unfinished, as it requires a mandatory system update to be downloaded (from flaky Nintendo servers). If this was a child's Christmas present this unnecessary delayed gratification could lead to tears:

Nintendo shouldn't put its games on smartphones any more than Apple should licence OS X. What you pay for the nicely designed hardware is more than compensated by the quality of the software and overall user experience. I could have bought a PC rather than an iMac and it would have been faster, but less productive. I could have bought a PlayStation rather than an N64 and it would have had cheaper disc based games, but much longer loading times than Nintendo's pricey cartridges.

Nintendo should replace Wii U with a console that can at least comfortably hold digital versions of its own 1st party titles even if this means that 3rd party games must install the the HDD from disc, overwriting what went there before, each time that they are swapped. It should manage 1080p60 in all of its 1st party titles and encourage 3rd parties to drop this to 1080p30 for Campaigns and 720p60 for Multiplayer. Whilst 1080p60 may seem a high goal to set for a future Nintendo Wii 3 the games from Nintendo have undemanding cartoon aesthetics and more use could be made of procedurally generated textures to shrink the size of downloads and maximise storage.

Nintendo should replace Wii U's touchscreen gamepad with a pair of wireless Nunchuks. A casual player will only need the motion sensing capabilities of one to play Wii Golf, yet they will find it much more responsive and precise in tracking their gestures due to similar technology to the Sixense STEM:

http://sixense.com/hardware/wireless

This is an evolution of the electromagnetic field based Razer Hydra:

Yet, the Hydra has an intimidating number of buttons, really all you want to see is:

So, how can you put all the buttons onto it for casual players to gradually gain enough mastery to be able to cope with Zelda without having to switch to another peripheral? A clickable thumb stick, a pressure-sensitive trigger and a horizontally split bumper above it would allow the inner portion in each hand to operate the system, with the right handed Nunchuk's bumper marked with a red + and the left handed Nunchuk's bumper marked with a blue - (the + would be held for ON and thereafter to go HOME and tapped to START, whilst the - would be tapped for SELECT and held for several seconds to turn the console OFF), the face buttons would need to be made concave and relocated to pits inside the handles beneath the middle and ring fingers of each hand. So you would see them from this angle if it were really a right handed Nunchuk:

Buttons-in-the-grips is not a new idea as can be seen with the Gamester FPS Master Controller:

There seems to be growing interest in VR these days, so could Nintendo offer an truly inexpensive alternative to an Oculus Rift and Steam Machine combination? All that is really needed is a pair of inexpensive wraparound polarized glasses to take advantage of people's existing Film-type Patterned Retarder Cinema style 3D HD TVs:

What if they don't have one of these fancy 3D TVs? Well, the glasses have infra-red LEDs embedded in the frames so that they can support simple head-tracking (like TrackIR 5) - a refinement of Johnny Chung Lee's work seen here:

Obviously, this FPR/LED/TV hack isn't true VR by anyone's definition, but I feel that the effect would suit Nintendo's imaginative fantasy worlds as they aren't burdened with the pursuit of photorealism. How hard would it be for Nintendo to add a second camera to Super Mario 3D World to support stereoscopic output and then provide this revamped version as a convenient download along with Pikmin 3D, Bayonetta 3D and The Legend of Zelda: The Wind Waker 3D, among many others, in order to ensure that the new console gets off to a flying start. Of course, the map screen in the game LEGO City Undercover would have to be accessed by tapping SELECT, but maybe it would be an improvement to not divide your attention between the TV and your Tablet? Which would eliminate the Wii U's underused gamepad would allow the money to be spent on better gesture tracking. something that ultimately stymied their original Revolution.

Nintendo need to make uniquely compelling interfaces and use these controls to inspire new games no other system can imitate, building upon what so many found to be so popular with the Wii with an expressive dual Nunchuk scheme that eschews the plethora of tacky peripherals. Those who may lament the lack of a D-Pad would probably buy a fighting stick anyway. Smartphones have terribly imprecise and inarticulate touchscreen interfaces, putting their software in competition with Doodle Jump and Angry Birds would be commercial suicide. Providing access to their entire back catalogue even with a PS+ style subscription would just soak up all the leisure time of the potential purchasers of AAA titles, obviating a need to purchase any of them. Going the way of SEGA, would not make a sound business plan as multiplatform development would inhibit innovation in the interface.