To be fair, in a lot of ways, it is. People talk about the PS2 era like the other 3 consoles didn't exist, but they did. The PS2 didn't win that era because no one was able to compete with them; they won because they had a better system.
Microsoft and Nintendo had to work harder as a result, and they did. The Gamecube features some of the best Nintendo titles ever released. Metroid Prime 1 and 2, Twilight Princess, Melee, Pikmin, and Paper Mario: The 1000 Year Door, among others. It also had some of the best third party games of all time, like Resident Evil 4. Nintendo focused on games, games, games, and make third party partnerships with publishers like Capcom because that's what they had to do to sell systems.
Microsoft did the same thing. They courted Japanese developers, and got exclusive titles like Ninja Gaiden. They courted studios like EPIC, and made it easy and affordable to bring studios that traditionally developed PC games (BioWare, Bethesda, Obsidian, etc) to consoles. They made huge strides on online gaming with Xbox Live. They made Halo.
They were trying to draw people to their systems. They produced better shit because they were trying to compete.
Sony didn't have to worry about it, and in their arrogance, they assumed that people would buy the PS3 because it had the word Playstation slapped on the box. They only reason that they were able to turn around the disaster that was the PS3's launch was because they were trying to outdo Microsoft. And look at all of the cool stuff that has gotten us.
So yeah, competition is essential. It makes the losers try harder and it keeps the winners from being complacent, especially when the winners had to work for it. Can you imagine what last gen would have been like if Microsoft had thrown in the towel after the original Xbox, and weren't there to provide an alternative to Sony's 2 year bout of incompetence? Can you imagine this gen without Sony as a counter to Microsoft's always online DRM, no exclusives, timed DLC bullshit? Because I can. And it isn't pretty.
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