Sega - The House that Sonic Built
Sega has a long history dating back to the 1940's, and got its start making jukeboxes and electro-mechanical games. Sega was one of the industry leaders during the booming arcade business of the 1970's, raking in more than $100 million annually by the end of the decade on the strength of games like Monaco GP, Minesweeper, Fonz, and Bomber.
Their success in the arcade business led to them entering the home gaming market first with the SG 1000, and then in 1985 with the release of the Sega Master System. The Master System proved a success in some regions against the Nintendo, but was soundly beaten in the key regions of Japana and the U.S, despite the Master System being technically superior to the NES.
The Glory Years
Sega's next console was the Sega Genesis, and it would be involved in perhaps the greatest hardware battle in gaming history, going toe-to-toe with the Super Nintendo in a heated war through the first half of the 1990's. The Genesis achieved much stronger success in North America this time around, where it actually had a slight advantage over the SNES in popularity on the strength of its new mascot Sonic and more appealing games for that region. Sega was renowned for their attitude-based marketing during this era as helping to propel them to success in the U.S. The Genesis was seen as the "cooler" system among teenage boys, with studies suggesting that demographic was reluctant to admit owning a Super Nintendo compared to a Sega Genesis.
Decline and Shift to Game Development
While Sega would eventually finish in second place during that console war, they had a great deal of momentum heading into the 32-bit era, and again had a jumpstart on Nintendo with their new system, the Saturn. However, architecture that was considered extremely challenging to develop games for, and an upstart competitor in the Sony PlayStation greatly hindered Sega's success. Developers that had flooded the Genesis with quality games during the previous generation by and large fled to the PlayStation, and their emphasis on superior 2D processing in their hardware proved a disastrous choice as 3D gaming became the far more popular choice for developers and gamers.
The Saturn would get trounced by the PlayStation, and its followup the Dreamcast was a victim of the PlayStation's success, as well as the growing perception in the industry that Sega did not support their hardware to the best of their abilities. Sega bowed out of the hardware business after the Dreamcast's relative failure, and shifted into a game developer instead. The company is now one of the more prominent third-party developers in the world, with a stable of popular franchises, among them the Shining series, Sonic, Phantasy Star, Shinobi, Super Monkey Ball, Virtua Fighter, and Puyo Puyo.