This is going to be a long essay, so here's the short version: The Wii U will be the last home console ever made by Nintendo, and the next Xbox could be Microsoft's last console. The home console gaming market is shrinking due to market fragmentation, and, while there's still room for a dedicated home gaming console, there is only room for two, and maybe only one.

Types of Gamers

Throughout the 20^th century and into the 21^st, we have progressed through several types of media entertainment: radio, film, television, and video games. (The Internet isn't a media itself, just a medium that delivers media in different ways. It will eventually lead to the dissolution of traditional radio and TV stations, but we're still a generation or two from that happening.)

What has marked all those types of media is eventual fragmentation. The video game market is also fragmenting, and it will only get worse (better?) from here. Fragmentation of these markets are based partly on genre (like radio station formats) and also based on market demographics. For video games, more than other media, the market is breaking down by demographic rather than genre.

Broadly there are four types of gamer:

• Enthusiast. Enthusiasts love to play games, and lots of them. Enthusiasts are more likely to own multiple systems, will almost definitely have at least one console, probably a gaming PC or laptop, and buy lots of games across a variety of genres. These are the so-called “hardcore” or “core” gamers that have been playing for quite some time.

• Obsessive. Obsessive gamers focus on one or two games and play them to the exclusion of all others. Most often the focus of their obsession is an MMO or similar online game that is constantly updated with new content. Obsessive gamers may change their obsession, but it will be rare, so they don't buy many different games, but they will spend lots of money on their one or two obsessed-over games.

• Pick-up-and-go. These gamers just want to jump into a game for 15 to 20 minutes and get a quick fix. They don't want big, complicated games or games with long levels or long times between checkpoints. They prefer puzzle games where they can solve a few puzzles and turn the game off.

• Social. Social gamers like playing with friends. They could be lumped into any of the other groups, and, in terms of spending habits, may fall into one of those groups. However, they will only spend their money and time on games that offer an online component because single-player just isn't interesting to them.

Let's leave that there and take a brief look at the history of consoles, beginning with Nintendo and Sega.

A Bit of Gaming History

After the wild days of early home consoles when several companies were releasing systems on top of each other, the Nintendo Entertainment System and Sega Master System established dominance in the late 1980s and held their positions for several years. A couple of feeble contenders from Atari and NEC came and went, but it wasn't until Sony released the original PlayStation that a worthy competitor was found.

For a while in the mid-to-late 90s there were three viable gaming systems, but Sega lost out to the N64 and the PS1 and left the hardware business after releasing the Dreamcast in 1998. Soon after, Sony released the PS2, Nintendo came out with the Gamecube, and Microsoft entered the fray with the Xbox.

It is important to note there have never, since the N64/PS1/Saturn days, been three truly successful home consoles at the same time. Yes, I'm going to deal with the Wii in a moment.

So, in the first half of the 2000's decade, the PS2 was the runaway success story while the Xbox made a good name for itself based on very good (console) exclusivity deals (Halo, BioWare games, Elder Scrolls) and the introduction of Xbox Live. The Gamecube limped along, helped by Nintendo's strong stable of first-party franchises, but it was, ultimately, deemed a failure.

What happened next must be understood in the context of what we now know. Microsoft launched the Xbox 360 a full year before Sony or Nintendo could get their systems out and used the head start to really be the leader of this generation. Sony stumbled out of the gate with the PS3 but has now caught up to Microsoft. Nintendo released the Wii.

The Wii initially took the gaming world by storm. It is considered by many to be a runaway success, and it is the best-selling home console of its generation. But...it was a failure. It was during this “success-story” of the Wii that Nintendo posted its first operating loss in the entire history of the company. People blame the weak launch of the 3DS and point to smartphones/tablets as the culprit. Nintendo's handheld business wasn't the problem; although, it is indeed the mobile market that hurt Nintendo.

Why Nintendo is Out of the Console Business

OK, let's pull in the four types of gamers mentioned earlier and relate them to gaming systems. For the first almost 40 years of video gaming, gaming was limited to home consoles (including the PC as a “console”) and, with the introduction of the Gameboy, limited mobile gaming. By “limited,” I mean the games you could get for your mobile system were essentially the same as the ones you could get for your home console.

Regardless of what type of gamer you are, you turned to one of the “Big 3,” whichever three happened to be the front-runners of that era. Even if you were a mobile gamer, you were getting the same experiences on Nintendo's handhelds (and Sony's, but Nintendo has always been top dog in the handheld console market).

When the Wii hit, the market had its first fragmentation. While the 360 and PS3 became the go-to consoles for the enthusiast and obsessive gamer (when drawn away from the PC), and the 360 with Xbox Live appealed to social gamers, pick-up-and-go gamers flocked to the Wii. And many pick-up-and-go gamers who didn't know they were gamers jumped on the Wii bandwagon. Wii hardware sold like gangbusters.

There's a problem, though, with pick-up-and-go gamers—they don't buy lots of software. Software sales for the Wii, outside of the old Nintendo standbys of Mario & friends, were awful. Because the Wii was so underpowered, big titles aimed at the enthusiast market never made it on to the Wii. The Wii became a wasteland of party games and low-priced shovelware trying to eke a few dollars out of a market segment that doesn't spend much on gaming.

And then the smartphone/tablet revolution hit along with a little Web site known as Facebook accompanied by the 500-ton gorilla called Zynga. Pick-up-and-go gamers and more casual social gamers had new places to go. Places with cheap—even free—games. If you're looking for a quick gaming experience, you're carrying one around in your pocket all day. You can pop over to FB and play Farmville or engage Words With Friends. You don't need a console—any type of console—any more. The console market is now populated exclusively by the enthusiast and obsessive gamers.

And, that is where console games are going. (And, by console, I mean dedicated gaming machine, whether home or handheld.) Look across the console gaming market and the party games and simple puzzle games and other types of shovelware are disappearing, they've moved onto the Internet or into the App Store and Google Play.

And this has totally destroyed Nintendo's home console market. The Gamecube “lost” to the PS2 and Xbox. Nintendo switched gears and used the Wii to open a new market segment. That market segment has now been squashed, and the Wii U is too little, too late to win the enthusiast/obsessive market back to Nintendo.

So, Where Are We Going?

There is still a market for mobile gaming for enthusiasts and obsessive players and Nintendo owns that market. I am by no means suggesting Nintendo is going anywhere. They have the strongest lineup of original IP of any gaming company—they still have Mario, and Link, and Samus, and Kirby, and Donkey Kong, etc., etc. The 3DS is doing well and some great games are coming out for it.

(In a telling recent Nintendo Direct, it was all about the 3DS games with little mention made of the Wii U.)

The Wii U is not doing well, and will become Nintendo's “Dreamcast.” A last gasp as the Big N exits the home console market and focuses on games and “hardcore” mobile gaming. Smartphones and tablets haven't taken that away. Yet. (Interestingly, in a sense, the Wii U is a big DS with a touchscreen and a non-touchscreen that work in tandem. That would make ports from the Wii U to the DS—or changes in target system—easy. Maybe Nintendo saw the writing on the wall years ago.)

That leaves the home console market to Sony and Microsoft.

I'm going to pause to say a brief word about PC gaming. Yes, there are many positives to gaming on a PC. There are also some negatives. From a game publisher's point of view though, PC gaming comes down to one thing: lack of market share. Multi-port games sell a lot more copies on console than they do on PC. Enthusiasts and obsessives will always love the PC, but not enough for the PC to make serious inroads into the console economy.

Back to Sony and Microsoft. There isn't room for a third home console any longer. There will be no credible challenger arising after the Wii U. The thing is, there may not be room for two home consoles any more. Are there enough enthusiast gamers to snap up software on two systems? It's hard to say, but if there are not, if we're going to see a day with one major home console, it will be Sony's PlayStation.

After the missteps with the PS3, Sony seems to have finally deduced everything I just laid out above. They have re-oriented themselves and are going after enthusiast gamers at high speed. They are throwing games at gamers like there's no tomorrow and their big PS4 reveal was all about the games, games, and more games.

Meanwhile, Microsoft, for the past couple of years, seems to have gotten it into its head that its major competitors are not Sony and Nintendo but Roku and AppleTV. They are trying hard to turn the Xbox 360 into a general home media device rather than a gaming machine. That could change with “Durango” (code name of the next Xbox), but it doesn't seem likely. Microsoft, once it gets an idea in its head, is loathe to change direction.

If you're an enthusiast gamer, as I am, there's a lot of excitement for this upcoming year. We'll get a new PlayStation and probably a new Xbox and both will be great machines and some fantastic games are already in the pipeline. But the Wii U is a flop and Microsoft will have to dedicate itself to gamers and not to people just wanting to watch ESPN, or this will become a one-console race within the next five years.

Which, all things considered, wouldn't be a bad thing. I'd actually have a good use for my Vita.

Update 1: Nintendo has essentially pulled out of E3, forsaking the big press conference for smaller, Nintendo Direct-style meetings just for the press. This is an acknowledgement from the land of Mario that it cannot compete with Sony and MS in the home console market, and some of the gaming press is starting to see the light.

Update 2: Rumors of the new Xbox have leaked and it is interesting to see MS considered a version of the Xbox that wouldn't play games, becoming basically a Roku. They have, according to this source, scrapped those plans for now, but even having it on the drawing board shows what MS thinks the home console market really is.