I think Sega coming up with add-ons for the Genesis was a big mistake. The add-ons were super expensive, and it fragmented their user base. If you think about it, Nintendo had the SNES and the N64 in the 90's. Sega had the Genesis (technically 89 in NA, but mostly marketed in the 90's), the SegaCD, the 32X, the Saturn, the Dreamcast. Not only did it fragment the user base from what consoles they had, it also fragmented the developers for which console they wanted to make a game for.
And I kind of feel Nintendo ended up in a better place by not coming out with an SNES CD. Sony did get a big market foothold by getting out before the N64, but the N64 was also significantly superior from a hardware perspective.
I agree with you that the add-ons to the Genesis were a mistake.
The Sega CD was released in December 1991 in Japan (as the Mega CD), followed by an October 1992 launch in the U.S. The device was expensive, and users had to pay an additional $299 on top what whatever they had disbursed to buy a Genesis. Plus, being an add-on, the market for a Sega CD was restricted to people who already owned a Genesis.
Although the Sega CD had a more powerful processor (a 68000 at 12.5 MHz), it was bottlenecked by the single-speed CD unit and by the RAM (6 Mbit). Back in 1991, even the single-speed drive and that amount of RAM were impressive for a console, but they did not provide an optimal gaming experience (especially since gamers were used to speedy ROM carts).
On top of this, back in 1991, few games made use of CDs, which were largely underused as media storage. The Sega CD, being expensive, limited to Genesis users, and with those bottlenecks, would not sell in large numbers to push developers to make more CD-based games specifically for the device. Developers would still prefer to make 16-bit ROM games at the time, which they could port to Genesis and Super NES, which, together, corresponded to a market multiple times larger than the Sega CD alone.
The Sega CD went on to sell more than 2 million units, which is good for an expensive add-on to a console. However, this number was largely insufficient to create a new gaming platform, and the Sega CD sunk with just a few good games.
Sega did not learn the lesson, and the 32X was an even greater failure. I am surprised that the 32X sold 800,000 units, given that it was exactly cheap ($159.99 at launch), and it was mostly seen as a watered-down Saturn. I wonder what was Sega's strategy to release two 32-bit consoles so near each other, one with ROM carts and the other with CD-ROMs (which means that games would not be as easily ported from one to the other, as CDs have far more storage).
It is even more impressive that six of the games released required both a Sega CD and a 32X. How many copies the developers were expecting to sell, considering that potential customers would have to own a Genesis, a Sega CD and a 32X in advance of considering buying the game?
I can understand Sega wanted to extend the Genesis lifespan. After all, the Genesis was, during some time, the second most popular console (after only the NES, and before going neck-to-neck with the SNES). Genesis was the biggest, and perhaps only, Sega success. The Master System was a successful console, with some 18 million units sold, but sales were far higher in Europe and Brazil; the Saturn and the Dreamcast did not sell in enough numbers to justify themselves. The Genesis was the only one to make it to the mainstream. But the add-ons were a mistake.
As for Nintendo, I think the decision to skip the SNES CD was the biggest mistake in its history.
First, because it allowed Sony to take over the SNES CD project and launch the Playstation a few years later. Sony would have never entered the gaming market if Nintendo had not dropped the SNES CD. Sony was a huge company that had the resources to take the market from the then all-powerful Nintendo. And, as it turned out, Sony became the big one, and Nintendo a distant second.
Second, because Nintendo alienated the developers. Nintendo stuck with ROM carts, mainly due to piracy concerns (this being one of the main reasons why the SNES CD project was dropped). ROM carts held much less storage than CD-ROMs, and were more expensive. Plus, the shortcomings of CD-ROMs were much superseded at the time, with 4x drives and more RAM. And, most important of all, developers were focused on making games for CD-ROMs, with full-motion video, and using a lot of storage. CD-ROM games could be made or ported to PC, Mac, 3DO, Playstation, Saturn, CD-i, and so many other platforms being released or becoming popular after 1993. Nintendo was late to the game in 1996, and decided to use a media nobody else was using. Why someone would make polygonal ROM games for the powerful but new Nintendo 64, when they could make FMV CD games that would run on different already popular platforms?