Ken's greatest folly... Yet ironically, it was the seed for a better Sony that we have today. Lots of companies have their own hubris times but how you bounce back from it is the making of them. Nintendo also had a bad time at one point with their own hubris in the N64 and Gamecube failures until the Wii saved them. On the otherhand, Atari and Sega never learned a thing.
I think they realized that creating more unique experiences was their way going forward and there was nothing that more advanced hardware would do per-say, to make Breathe of the Wild or Mario Galaxy any better than it could be except for being a higher budget.
And it's worked, they're making money hand over fist and have been for years. Last place or not people still talk about their experiences with the switch/wiiu/wii.
Yeah! They first realized their limitations and were honest about it internally -- they were not going to win a war of "power" in the console hardware. Once they accepted that, knowing their specialties are their IP franchises (BOTW, MG, SSMB, etc), then the question is besides the lower price point and the brand name, how do you bring people in and make the console attractive if you know it's never going to be the most powerful?
That's why every console post-N64 has had some kind of big gimmick with the media. The N64 is the power upgrade to SNES - instead of two controllers, it's four, instead of two dimensions, it's three. But it didn't matter -- the PSX, which was only 32 bit and not 64, won the market.
And then from Gamecube forward we saw Nintendo more consciously implement gimmicks to present the hardware as "alternative" in some way, conceding on the spec front in order to try to win the 'innovation' front.