The Mega Drive is Sega's 5th home console, following the SG-1000, SG-1000 II, Sega Mark III and Sega Master System. It was codenamed the Sega Mark V during development and is part of what is now known as the 4th generation of video game consoles.
Sega began working on its Mark V shortly after the release of the Mark IV (aka Master System). As was now tradition, the Mega Drive was built on Sega's existing Master System hardware to keep manufacturing costs down. Hardware and software would be made backwards compatible, and the foundations for possible expansions would be laid to cover all bases.
Sega's then CEO, Hayao Nakayama contributed several ideas to the Mega Drive project, deciding that the console should be based on the company's successful Sega System 16 arcade architecture. 16-bit processors were almost a requirement for major arcade releases, and so it made sense to bring this technology to the home. Though not the first home machine to contain a 16-bit processor, the Mega Drive was the first to print the words 16-BIT in big, gold lettering onto the console itself, thus starting what is often named as the bit wars, something featured heavily in advertising campaigns up until the Nintendo 64 in the mid-1990s.
Nakayama claims to have officially named the console Mega Drive, with Mega representing superiority over rival machines, and Drive representing the speed of the chosen Motorola 68000 processor - the heart of the console. Unfortunately for Sega, the Mega Drive trademark could not be registered in North America and had to be replaced with the name Sega Genesis. The trademark was held by a company known as Mega Drive Systems, who specialized in creating storage devices for home computers.
The Mega Drive was first released in Japan on October 29, 1988 with two launch titles, Space Harrier II and Super Thunder Blade, and retailing at 21,000 Yens. Life was difficult for Sega - Nintendo's Famicom held a monopoly on the market, while NEC's PC-Engine had already established the groundwork for a new 16-bit generation a year prior, growing ever more popular by the day. From a home computer perspective, the MSX2 was continuing its dominance similar to its predecessor (also still supported at this point), the MSX. The NEC PC-9801 and the still relatively new Sharp X68000 were also fighting for the professional computer market, though these were out of reach of many Japanese consumers at the time.
Most major Japanese developers and publishers of the day were in the pockets of Nintendo, NEC and Microsoft/ASCII, with Sega fighting an up-hill battle from day one. The Mega Drive found itself following the trends of arcade games at the time — shoot-'em-ups — and Sega also tried to woo over home computer developers (especially Sharp X68000 developers), establishing strong links with the likes of Toaplan and Telenet Japan, as well as initially gathering interest from Namco and Capcom.
Sega's catalog of arcade ports kept the system alive, but the talk and subsequent launch of the Super Famicom in late 1990 kept Sega in third place (behind the PC Engine) for most of the generation. The release of SNK's Neo Geo AES may have also had an impact in the console's running's. However, the situation could have been bleaker, as releases like the Shining games, Langrisser, Puyo Puyo, and the Sega Mega-CD kept the console from fully dropping out early.
The Mega Drive was axed in Japan by the end of 1995, with Sega releasing its last first-party game in December and Compile releasing the last game for the region the following year. Sega were very much keen on backing their Sega Saturn console instead, a move which saw it achieve much greater success than the Mega Drive in the years that followed.