Around a year ago the analysts were confidently predicting that the Wii would come a distant third in this generation. If you can count it as this generation as it really is GameCube V1.5 . So it is refreshing to see that the Nintendo ethos of entertaining people has proved so many people wrong. Including Nintendo themselves, which has led to them making two mistakes.

Their first mistake was to not make enough Wiis. At retail they are like hen’s teeth everywhere worldwide. And there are still many territories where it has not been released. I don’t know but I would guess that production is now between one and two million units a month and ramping up fast. They could easily sell three million. There are reports of Japanese sales dipping in August and September, but that is almost certainly supply constrained as they shipped stock into north America and Europe.

Their second mistake was to have insufficient numbers of the right kind of game title. The Wii is selling to just about everyone in the population, not just the core gamer of old. This is the reason for it’s amazing success. But it is confusing the games industry who continue to churn out gamer’s games for it. Wii Sport is the perfect Wii game and should be a lesson for everyone. Wii Fit will be massive and will prove that Nintendo know their own platform best. Meanwhile Metroid Prime 3, a superb gamer’s game, continues to underwhelm in the market.

So we are getting mixed messages. Nintendo cannot keep up with demand. Whilst reports say that 67% of Japanese Wii owners haven’t used them recently. So people are starting to talk about a bubble. But this is because they don’t understand. The mass market, who have bought the Wii, are not going to use it every day. Unlike core gamers they have got a life. So they are only going to fit Wii time into their busy lives when something comes along to pique their interest. Economists might call it something like marginal propensity to play.

There is an important lesson here for our industry. We cannot treat the Wii in the same way as we have ever treated any other gaming platform in the past. It is no good taking the existing catalogue and Wiifying it. It is no good even thinking about core gamers and gamer’s games. For the Wii you need to forget about everything that has gone before.

But has this important lesson been taken on board? By and large probably not. There is an immense number of titles under development for the Wii. Probably more than for the PS3 and 360 put together. It is a veritable publisher’s goldrush. And there are going to be a lot of disappointed people when the sales figures come through. However there will be gems that catch the public imagination, games that are entertainment for everyone. And these will make indecent amounts of money. And they will mostly be first party Nintendo games, simply because they understand the nature of their beast.

Nintendo is now making far more profit out of video gaming than any company has ever done before. Unlike their competitors they make a profit on every box that leaves their factory. They are now the third most valuable company in Japan behind Toyota and Mitsubishi UFJ. They are worth over 10 trillion yen ($85 billion) which is twice what the whole of Sony is worth, yet Nintendo have just one eighth of the sales revenue.

There is no danger of a short term Wii bubble but there may still be the potential of a medium term one. As Microsoft and Sony get their acts together. But Nintendo will be safe for some time. There is the sheer mass of new titles and the relative simplicity of the machine gives Nintendo a huge amount of room to price cut. Best of all it is Nintendo, so they will continue to innovate to entertain. The Balance Board, for instance, is a new gesture interface that opens a whole raft of new gaming possibilities.

So will the Wii go on forever? Of course not. Increasingly it’s GameCube V1.5 roots will betray it. As the capabilities of the 360 and the PS3 are realised they will eventually leave the Wii behind. Nintendo know this. So there must be a new, more powerful machine on the way. But this time Nintendo can run a two model policy, like Sony do. The Wii can be cheap and very cheerful as an entry level and third world product and the new machine can be positioned much higher. As technology has moved on it will be above the 360 and PS3 in every way.

So do you think Nintendo are set for a long run at number one or do you think it will all come crashing down?