In Japan, the Mega Drive fared poorly against its two main competitors, Nintendo's Super Famicom and NEC's PC Engine, but it achieved considerable success in North America, Brazil, and Europe.

The 1991 North American release of the Super Nintendo Entertainment System triggered a fierce battle for market share in the United States and Europe known as the "console war".

In the early 1980s, Sega Enterprises, Inc. – then a subsidiary of Gulf+Western – was one of the top five arcade game manufacturers active in the United States, as company revenues surpassed $200 million between July 1981 and June 1982.

Although the Master System was a success in Europe, and later in Brazil, it failed to ignite significant interest in the Japanese or North American markets, which, by the mid-to-late 1980s, were both dominated by Nintendo.

[20][21] In 1987, Sega faced another threat to its console business when Japanese computer giant NEC released the PC Engine amid great publicity.

[24] According to Sato, the Japanese design for the Mega Drive was based on the appearance of an audio player, with "16-bit" embossed in a golden metallic veneer to create an impression of power.

[34] Games like Space Harrier II, Ghouls 'n Ghosts, Golden Axe,[33] Super Thunder Blade, and The Revenge of Shinobi were available in stores at launch.

[46][47] For the North American market, former Atari Corporation Entertainment Electronics Division president and new Sega of America CEO Michael Katz instituted a two-part approach to build sales.

[23] Since Nintendo owned the console rights to most arcade games of the time, the second part involved creating a library of recognizable games which used the names and likenesses of celebrities and athletes, such as Pat Riley Basketball, Arnold Palmer Tournament Golf, James 'Buster' Douglas Knockout Boxing, Joe Montana Football, Tommy Lasorda Baseball, Mario Lemieux Hockey, and Michael Jackson's Moonwalker.

[50] The Japanese board of directors initially disapproved of the plan,[52] but all four points were approved by Nakayama, who told Kalinske, "I hired you to make the decisions for Europe and the Americas, so go ahead and do it.

Schwartz reviewed Sega's copyrighted development manuals and tools, studied the Genesis hardware and games, and wrote original documentation that summarized his findings.

"[74] After the deal was in place, EA chief creative officer Bing Gordon learned that "we hadn't figured out all the workarounds" and "Sega still had the ability to lock us out ...

The winning submission was a blue hedgehog with red shoes, Sonic, created by Naoto Ohshima,[75] spawning one of the best-selling video game franchises in history.

[76][77] The gameplay of Sonic the Hedgehog originated with a tech demo created by Yuji Naka, who had developed a prototype platform game that involved a fast-moving character rolling in a ball through a long winding tube.

[4][80] Sonic the Hedgehog greatly increased the popularity of the Genesis in North America,[59] and the bundle is credited with helping Sega gain 65% of the market share against Nintendo.

If the string was present, the console would run the game, and would briefly display the message: "Produced by or under license from Sega Enterprises, Ltd."[88] This system had a twofold effect: it added extra protection against unlicensed developers and software piracy and forced the Sega trademark to display when the game was powered up, making a lawsuit for trademark infringement possible if unlicensed software were to be developed.

[94] As a result of the appeal, the Ninth Circuit overturned the district court's verdict and ruled that Accolade's decompilation of the Sega software constituted fair use.

[88][96] Further, the court found that the trademark infringement, being required by the TMSS for a Genesis game to run on the system, had been inadvertently triggered by a fair use act and was the fault of Sega for having caused false labeling.

[101] With this new rating system in place for the 1994 holiday season, Nintendo decided its censorship policies were no longer needed, and the SNES port of Mortal Kombat II was released uncensored.

[139] In an effort to compete with Sega, third-party developer Catapult Entertainment created the XBAND, a peripheral which allowed Genesis players to engage in online competitive gaming.

[146] The Super NES supports the inclusion of enhancement chips inside each cartridge to produce more advanced graphics; for example, the launch game Pilotwings (1990) contains a digital signal processor.

It was first used in Star Fox (1993) for real-time 3D polygons, and Super Mario World 2: Yoshi's Island (1995) demonstrates rotation, scaling, and stretching of individual sprites and manipulates large areas of the screen.

Based on a digital signal processor core by Samsung Electronics, this chip enables the Genesis to render polygons in real time and provides an "Axis Transformation" unit that handles scaling and rotation.

[160] The concept was initially planned as a new version of the Genesis, with an upgraded color palette and a lower cost than the Saturn, and limited 3D capabilities thanks to integration of ideas from the development of the Sega Virtua Processor chip.

Although the LaserActive was lined up to compete with the 3DO Interactive Multiplayer, the combined price of the system and the Mega-LD pack made it a prohibitively expensive option for Sega players.

John Ricciardi, in particular, considered the Genesis overrated, saying he had consistently found more enjoyment in both the Super NES and TurboGrafx-16, while Dan Hsu and Crispin Boyer recommended it based on its selection of classic titles and the high value-for-money of the six pack-in games Sega was offering at the time.

[213] In January 2008, technology columnist Don Reisinger proclaimed that the Genesis "created the industry's best console war to date", citing Sonic the Hedgehog, superior sports games, and backward compatibility with the Sega Master System.

[216] In 2014, USgamer's Jeremy Parish wrote, "If the Atari generation introduced video games as a short-lived '70s fad ... and the NES generation established it into an enduring obsession for the young, Sega's Genesis began pushing the medium toward something resembling its contemporary form", expounding that the system served as "the key incubator for modern sports franchises", made "consoles truly international" by providing Western third-parties previously put at a disadvantage by Nintendo's restrictive licensing policies with a more profitable alternative, created "an online subscription service" that foreshadowed "PlayStation Plus more than 15 years early" with the Sega Channel, and "played a key role in ensuring the vitality and future of the games industry by breaking Nintendo's near-monopolistic hold on the U.S. and awakening the U.K. to the merits of television gaming".

[217] For his part, Kalinske highlighted Sega's role in developing games for an older demographic and pioneering "the concept of the 'street date'" with the simultaneous North American and European release of Sonic the Hedgehog 2.

[218][219] John Sczepaniak of Retro Gamer noted, "It was a system where the allure was born not only of the hardware and games, but the magazines, playground arguments, climate, and politics of the time.