In 1987, 16-bit personal computers such as the Commodore Amiga and Atari ST, and 16-bit arcade machines made video game consoles look not so good. At this time, Nintendo had a 95% market share in the US and 92% in Japan. It was no use for Sega to continue battling with its Master System console. It was time to try a new way of outdoing the competition.
Sega's arcade machines using System 16 technology had become very popular. Sega CEO Hayou Nakayama decided it was time to bring this technology into home videogame consoles. Sega began developing their new 16-bit console based on System 16. Their final design worked out so well that they used the technology to make three new arcade boards (MegaTech, MegaPlay and System C). This now meant that any game made for these arcade machines could be almost perfectly ported to their new console. Sega also made their console backwards compatible with the Sega Master System with an add-on device later named the Power Base Converter.
The last issue was to give the console a name. The official name given to it in-house was MK-1601, but a more appealing name was needed when marketing to the public. "Mega Drive" was finally decided upon by Sega executives, "mega" being a word previously used by Sega when promoting games that were larger and more powerful than others, and "drive" being a word associated with speed and power. Sega of America could not use this name as it was already trademarked by another company. They went with "Genesis" instead, meaning "in the beginning", as Sega was leading the way in the beginning of the next-generation consoles.
NEC's PC Engine was also in development at the time and posed a threat to both Sega and Nintendo as they had the resources and money to make a really good console. When the PC Engine was released in Japan on 30th October 1987, it didn't make much of an impact. When the Mega Drive was released on October 29th 1988 (for 21000 Yen) in Japan, it too didn't make any large initial impact, in fact, it made a smaller impact on the video game market than the PC Engine, despite being superior to both Nintendo's dominant Famicom and the PC Engine.
Sega soon announced their initial US release date of 9th January 1989 and emphasized that the Genesis was the first true 16-bit system (PC Engine (or Turbo GrafX 16 as it was called in the US) wasn't). The announced price was US$200. When the Genesis was released in America on 14th August 1989 (in Los Angeles and New York only. The rest of the country received it on 15th September 1989. It was priced at US$190.), it was a different story to what had happened in Japan. NEC had poorly marketed the Turbo GrafX 16 (which was released about 6 months earlier) in America and the Genesis was recognised for its arcade quality graphics and superiority to the Nintendo Entertainment System and amazed gamers because of its capabilities.
The European release of the Mega Drive was November 30th 1990. It came to the UK first (at a price of £190) because the Master System had been well supported there. Australia also received the console in 1990. The Mega Drive and Genesis are both interchangeable. Most Genesis games will work on Mega Drive without the use of an adaptor and you can play Mega Drive games on Genesis with the help of an adaptor. Sometimes when a game was not re-released on a Mega Drive cartridge, the Genesis version would be imported for play on the system.
Soon, gamers began to notice that many first generation games were repetitive as there were too many arcade ports. Sega didn't have a "killer app" that could help push their system. So until they could find one, it was up to companies like Electronic Arts (with their popular sports titles) and Capcom (with their successful Strider game) to keep people interested in Genesis.
In mid-1990, the sales of Genesis consoles surpassed 1 million in North America alone. Meanwhile, Nintendo realised that Sega was taking away their customers. They got back to work on a 16-bit console (remember that the Famicom was originally going to be 16-bit but it would have cost far too much to produce back in 1983). They came up with the Super Famicom and released it on 21st November 1990 in Japan. It was then released as the Super Nintendo Entertainment System in the US on September 1st 1991. The 16-bit war had begun.
To challenge Nintendo, Sega had everything it needed except for a mascot, a marketing campaign and a killer app. These three wishes were granted for Sega when they began accepting applications for mascots. The final decision was Sonic the Hedgehog. Not only would this become the "killer app" for the system, but Sega also now had the perfect mascot that emphasised the system's speed. Speed was the one thing that the Genesis excelled in and the SNES didn't. Sega's marketing campaigns were now all based around speed and aggressive advertising. Sonic even became the pack-in game with the console in place of Altered Beast. Sales skyrocketed.
1992-93 were Sega's best days. All their efforts and advertising had paid off. Great games were still being made and more and more third party companies were producing games for the console. The Mega CD/Sega CD had been released and so Sega were once again ahead of Nintendo technology-wise. Sega also released a Mega Drive II/Genesis II console that was smaller than the original and did not include a headphones jack or volume control. The Mega CD/Sega CD was also redesigned to fit with the new Mega Drive/Genesis, however, both versions of Mega CD/Sega CD will work on either console. It was in 1993 that Sega pulled ahead of Nintendo in the North American market share. But with all of this success, they began slacking off.
Things weren't so good by the end of 1994. Sega had not been advertising as much anymore. The Mega CD/Sega CD was not selling so well and Sega was now in debt because of it. The development and cost of producing the 32X also helped contribute to this debt. 32X was not selling well either. There were also disputes between Sega of Japan and Sega of America. All of this gave Sega a bad image to gamers and programmers. Not to mention the concern over violence in video games that had began the year before after the release of Mortal Kombat in which the Sega version was true to the arcade version, leaving all of the violence in, while the Nintendo version censored the really violent parts. Although Sega's version outsold Nintendo's 4 to 1, it was not giving Sega a good image. To try and regain respect, Sega introduced the VRC (The Videogames Rating Council), which somewhat helped, but not enough. Things kept going downhill for Sega.
Sega's market share had now fallen from 65% to 35% within one year. Sony's Playstation had also been announced (as well as earlier announcements of Nintendo's planned Project Atlantis). Sega needed a new console in order to stay in the market and so they announced the Sega Saturn. But that's a different story.
In 1996, Sega announced it would drop support for the Genesis in favour of the Saturn. This was a bad move. People no longer wanted to be bothered with the Genesis anymore and supported Nintendo and Sony instead.
The Mega Drive was still supported up until 1998 in Europe where it outsold all other consoles, even the Sega Saturn. Nintendo could not seem to get as strong a hold of the European market as Sega had. In Brazil, Tec Toy (distributors/manufacturers for Sega in Brazil) had success with the Genesis up until 1998 as well, just as it had with the Sega Master System. Genesis had a 75% market share in Brazil.
In 1997, Majesco Sales wanted to produce a low-budget version of the Genesis that left out a few features and so it could be sold at the low price of US$50 as an alternative to the more expensive Sony and Nintendo consoles on the market. It was called the Genesis 3 and was released in 1998 only in North America.
There were also a number of clone Mega Drive/Genesis consoles released, some being combined with 32X, Mega CD/Sega CD or even Personal Computers.
The Mega Drive/Genesis did fairly well in most places where it was released, mostly due to its arcade ports, sports games and platforms. Although it did not win the 16-bit war, it sure did shake things up for Nintendo and made its mark in console history.