Both actually, hence the eating of the lunches:

  Global Sales
  -------------
  1. Wii ~95 million[1]
  2. Xbox 360 ~66 million[2]
  3. PS3 ~62 million[3]

Nintendo has made profit on the Wii hardware sales since launch, roughly $50 on average between US, EU and Japan[4] while it took Sony until 2010 (tail end of 2009) to become profitable with the PS3's hardware[5] while Microsoft most likely hit profitability in 2007 (2006 was a wash[6] with 2008 showing profits of the entire division[7])

Given that the Wii wasn't much more than a 50% performance bump over the Gamecube[8] which launched 5 years prior, it was amazing how such a conservative approach with an ingenious/untapped interaction mechanism sold like it was going out of style for years.

In a lot of ways the Wii was a lot like the first iPhone -- they did something no one else had thought to do, did it well enough that even hardcore gamers thought it was cool and made it accessible to everyone.

I agree that (especially) in my circles, the Wii is a paper weight, but I have a feeling the market it sold so ravenously to was brand new gamers and non-gamers... people that I don't interact with on a regular social basis which is why the Xbox seems so much more popular to me.

I don't think Microsoft wants to be out-done by Nintendo again, especially since it is clear MS knows how to do the software side better than anyone, and Sony cannot physically afford to do not follow suite... I am actually excited because all these next-gen devices LOOK to have AMD platforms in them (CPU/GPU) which will make middle ware normalization more formal and hopefully make squeezing life out of the platforms even longer and more effective than the current cycle (which blew my mind how long it lasted).

  [1] http://en.wikipedia.org/wiki/Wii#System_sales
  [2] http://en.wikipedia.org/wiki/Xbox_360#Reception_and_sales
  [3] http://en.wikipedia.org/wiki/PlayStation_3#Sales_and_production_costs
  [4] http://askville.amazon.com/big-profit-margin-Nintendo-Wii-rivals/AnswerViewer.do?requestId=31918760
  [5] http://www.joystiq.com/2010/05/13/ps3-proved-profitable-in-last-sony-fiscal-year/
  [6] http://www.techspot.com/news/23612-microsoft-makes-tiny-profit-on-xbox-360-hardware.html
  [7] http://www.mcvuk.com/news/read/xbox-celebrates-profitable-year-as-360-hardware-sales-rise/015046
  [8] http://www.pvcmuseum.com/games/vs/nintendo-wii-vs-gamecube-specs.htm