...their first MILC was the second best-selling MILC in their home country (where MILCs are popular), beating out many of the established vendors in that space.
It was the second one - not the first, anyway. Which was the first, and by what margin? That happened in a single country that has a somewhat "special" market compared to the Western one, Japanese buyers have a different mindset. Here the Canon M was a big failure, and to sell had to reduce price greatly. The successor is not even sold.
Is it wise to design a camera for the home market only, and then try to sell it worldwide, and fail? Why design a single model, instead of a couple, a lower-end one and an higher-end one, to fulfill different needs, instead of insisting on a lower-end one only, despite interchangeable lenses could appeal to higher-end users?
Sure, Canon sell a lot of DSLR, but how many of them are thanks to its higher-end models traction? People may dream of a 1D or 5D and then maybe buy a 7D or 60D because they can't afford the formers, but they anyway "feel good" because they know they're entering a "professional system" that can last many years.
But with the M? It's ok to sell more lenses and use a different mount for smaller ones, especially from Canon perspective, but if the user feels that those lenses may be bound to a camera system going nowhere, how many will be interesting in buying them instead of going EF?
The M camera was successul in Japan, OK, how many M lenses were sold to the average Japanese M user? Was the system successful, or most users found the kit lens enough, as it was just a fixed lens camera, just a little "cooler" "hey, see, I could remove the lens if I wish, and it looks a little like an expensive Leica..."