In 1987, 16-bit personal computers such as the Commodore Amiga and Atari ST, and 16-bit arcade machines made video game consoles look not so good. At this time, Nintendo had a 95% market share in the US and 92% in Japan. It was no use for Sega to continue battling with its Master System console. It was time to try a new way of outdoing the competition.
Sega's arcade machines using System 16 technology had become very popular. Sega CEO Hayou Nakayama decided it was time to bring this technology into home videogame consoles. Sega began developing their new 16-bit console based on System 16. Their final design worked out so well that they used the technology to make three new arcade boards (MegaTech, MegaPlay and System C). This now meant that any game made for these arcade machines could be almost perfectly ported to their new console. Sega also made their console backwards compatible with the Sega Master System with an add-on device later named the Power Base Converter.
The last issue was to give the console a name. The official name given to it in-house was MK-1601, but a more appealing name was needed when marketing to the public. "Mega Drive" was finally decided upon by Sega executives, "mega" being a word previously used by Sega when promoting games that were larger and more powerful than others, and "drive" being a word associated with speed and power. Sega of America could not use this name as it was already trademarked by another company. They went with "Genesis" instead, meaning "in the beginning", as Sega was leading the way in the beginning of the next-generation consoles.