You are saying a lot of things there! First, remove "somewhat" when talking about the Neo Geo being a failure. The home version (which I have) was not an achilles' heel for SNK or anything, but it was more of a prestige project treading water than a project that could have propelled SNK into the future. They absolutely didn't have a platform to allow them to rake in the cash and that led to the marginalization and eventual downfall of the company.
Cartridges didn't make sense after the appearance of CD-ROMs, and the lack of 3D hardware in a new system didn't make sense after the PlayStation (the origins of Sony's polygonal 3D system date back to 1983 or so). Cartridges were just too dang expensive for everybody involved, and didn't have much space anyway (it would've been even worse before the release of the N64, which is the time period we're talking about). The actual Neptune would have been unnecessary dead weight in Sega's product line; they already had their 32x and the verdict was in by then - it wasn't great and couldn't really compete. Better by far to move to the Saturn and newer hardware - and not by some fanciful $100M purchase of the 3DO M2 (oh goodness) which wasn't competitive and hurt Matsushita / Panasonic financially.
The alternative you suggest would be a Saturn with hardware a year further out of date, which I find a revolting idea. That or they would have lost the farm on buying components at much higher prices. The 32x was about the best they could do before the Saturn, why would you want them to have done it earlier?
Or maybe you meant that they should have moved more developers towards the Saturn early in its lifespan - I think the console got about as good as it could do later on, and it was always going to be hard to work on considering its bizarre architecture.
If everybody had dropped the Genesis and started salivating over the Saturn ahead of schedule...I don't see what purpose that would have accomplished; Konami might not have made Contra, or Bloodlines, and the idea of losing other classics from '95 like Comix Zone in favor of playing around with preparing for Saturn's primitive 3D hardware and more third person snorefests makes me ill.
I think that the console companies should stretch their systems as long as possible to lower barriers to entry for everybody. Extender systems aren't certain to have a market though, and special chips (like in the SNES) are wasteful.






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