SMS had the hardware, but didn't have the developers that Nintendo did at that time. The Genesis proved this out. Moreover, SEGA itself wasn't the same company it became in 1989-1991. The arcade ports the Genesis (and SMS) got in those years were tremendous. SMS has a nice library now, but not in 1986-1987 during its initial roll-out. By that time Nintendo had release Punchout, Metroid, and Zelda, in addition to SMB. 3rd party franchises like Mega Man, Contra, Castlevania, etc. were coming out as well. SEGA didn't have the money to spend on big advertising either. Not to mention the absolutely hideous box art the games had, with no label artwork. It looked like a vastly inferior product to the consumer.