Atari was poorly managed by the Warner Communications parent. However, remember many of the lessons video game companies follow today were learned unfortunately by Atari, Activision, Coleco, Mattel, etc. back then. There wasn't any history to go on. When new things like that come along, the market becomes flooded and then only the strong survive. The problem Atari had was of course the sale to Tramiel, who torched the console division, only to bring it back with basically crap after Nintendo had taken off.

Unfortunately Atari always went for the quick fix, which is what the 5200 was. It was designed to steal Coleco's thunder and keep the customers with Atari until the next system (7800) came out. Granted the 5200 was too big and the controllers were horrible, designed by someone who literally had barely any knowledge of console gaming. But the games were very good, sound and graphics. IMO they are much more playable with a decent stick than the CV. They had an arcade perfect Pac-Man. Plans in 1984 were on the way for better games, the "Jr." console, and a centering Analog stick. Crashed canceled it all, which was too bad. I think they could have pulled people into the 5200, weaning them off the 2600 by '85 or so, and then come out with the 7800.

Now the 7800 that came out could NOT have been the one that was released. I don't care what all the homebrewers are doing now with that 7800 expansion module, compared to the NES and SMS it was dog meat. The resolution was the biggest drawback. Had it been done right, the 7800 could have entered when it did, in the midst of the Nintendo wave, and probably taken position behind Nintendo, but still in the game. At that point, they could have joined forces with SEGA perhaps, and released a 16-bit system, possibly just what the Genesis was.

The bottom line is Atari just didn't have a system of the NES's standards, even though the Famicom was not much different from the SMS, MSX or Colecovision, but if they'd stayed in it, they could have had a real chance with the 7800. However, the 7800 needed to be much better than the lackluster hulk it was.

Of course, none of that would have mattered if the IDIOTS at Atari had agreed to distribute the NES with their name on it.