Historically, weaker hardware has been more successful than its competitor(s) more often than not. The problem with the Wii U in this regard is not that the hardware is behind, it's that it's too far behind AND it's not the leader. PS2 for instance, had two failsafes: 1.) it was just powerful enough to run versions of the games GC and Xbox had (even if quite compromised, as was the case with Splinter Cell) 2.) failing that, it was the market leader and so received the lion's share of the 3rd party support anyway.
Is WiiU powerful enough to run compromised versions of the high-end 3rd party games that XboxOne and PS4 will have to offer? I don't know yet. If not, if the Wii U's capacity is too far behind, then being way behind in sales will be detrimental. If you have no market pull, than the 3rd parties can afford to ignore you.
Nintendo didn't need the most powerful machine, or even an equally powerful machine. Better to be in the same ballpark, even if it's up in the cheap seats, and come in with a price lower than PS4, but higher than Wii U. You can always price drop or draw up deals to pull in the general public, families, parents, casuals, etc. You can't raise the hardware if you come in too weak -you're stuck. And the Wii U isn't a continuation of the Wii 'philosophy,' so that price/hardware comparison isn't helpful, imo.
The branding is an issue. A big issue, one that I don't think is given the proper amount of gravity in the media or among the players on forums. The masses still don't know what the system is about, whether it's a peripheral or a new version of the Wii.
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