Sonic was basically developed to have a face to sell the Genesis with, to compete against Mario. Since Sega chose to use Virtua Fighter to sell Saturns and ignored Sonic, and then was well on its way out of the hardware market by the time the Dreamcast launched, Sonic lost a lot of his purpose, and Sega couldn't really figure out what to do with him. He didn't have a game to transition him to 3-D that was anywhere near the caliber of Super Mario 64.

But hey, the Sonic movie did really well at the box office, so hopefully that will give him a revival in the video game world.