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RolStoppable said:

The problem that new generations are supposed to solve isn't technological relevance. It's about selling video games. The industry is cyclical, because over time more and more people stop playing their consoles and software sales decline as a result. It's incredibly hard to get people to return to a system they stopped playing, so a fresh start with a new console is the best bet. That's why Sega tried to jumpstart the sixth generation with the Dreamcast, because the Saturn died quickly outside of Japan. Sega needed to sell games to stay in business and they couldn't accomplish this with only market where they weren't doing all that great either.

Better graphics in new machines are just one reason that can be employed to get people interested in playing video games again. It's also by far the simplest way, because developers can keep making exactly the same games. It doesn't require much thought or vision.

What the term generation refers to are consoles that were competing for consumer dollars during largely the same timeframe or at least were supposed to. "Largely", because there will of course be some overlap due to one competitor trying to get a headstart. "Supposed to", because systems that flop don't stay relevant for the entire timeframe. The Dreamcast fits both of these outliers. It was a sixth gen consoles despite launching only two years after the Nintendo 64, because it was supposed to compete with the successors to the PS1 and N64.

The aspect you bring up about graphics not adding much to games after some time is true, but it doesn't negate the origins of the concept, of the business practice. If the WiiU didn't bring a spec upgrade to the Wii, who would have bought it? What would have warranted the creation of a whole new console that could not have been done as an extension to the current model, like Wii Fit was? A minor point to correct, your point remains however, is that it's graphics et al, so processing power, better RAM, better storage, networking and better media, which, just as an exmple, allows for better AI, a better online experience, a more seamless digital experience, and a few other console features related to computer technology upgrades.

The last paragraph is the most interesting. The industry sales leader is currently the one who defines what a gen is, what the gens were laid out as in the history of video games as outlined by wikipedia. The WiiU will compete on one hand with the PS3/360 and, and with the PS4/durango on the other. As such, it's difficult then to say whether it is a 7th or an 8th gen console by that definition. It will also depend on how long the PS3 and 360 lives are extended until their successors come.