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Salnax said:

Looks like the NES basically had the same CPU as the Atari 7800. And overall, the consoles have pros and cons, but are vaguely on par. It makes me wonder what could have happened if the two had an even competition. Even though the NES was superior at scrolling, I can imagine a world without the 1983 crash where the NES is home to home-tailored experiences like sidescrollers while the 7800 was the definitive console for many arcade ports, especially since the 7800 had more colors available, larger possible sprites, etc.

I think the outcome would have been largely the same. The NES got a lot of arcade ports, and while the NES was definitely not strong enough for arcade-perfect ports, a lot of them were very good arcade ports, especially for Capcom games. Some home versions were arguably better than the arcade thanks to the developers working their games around the strengths and weaknesses of the NES. Bionic Commando comes to mind here, as it was kind of a meh game in the arcades while being one of the most well-loved NES games.

The reason why the NES wasn't known for its arcade ports was because the NES had games like SMB 1-3 and Zelda, which not only provided experiences better than the arcade, but were beyond what the 7800 was capable of. The 7800 had potential for larger sprites than the NES, but the CPU wasn't really up to the challenge of rendering them, so that advantage was nullified. I don't see the 7800 being able to replicate a lot of Atari Games's late 80s games. The 7800 also had the same sound chip as the 2600, which meant that it had worse out-of-the-box sound than the 5200. Some 7800 games apparently included the sound chip from the Atari 800, which had far and away the best sound of early home computers, at additional expense to Atari.

I actually felt that game wise, the 7800 was a step down from the 5200, which was based on the architecture of the Atari 8-bit line. The Atari 8-bit computers, which I had back then, give you an idea of what the 5200 could have been if it hadn't had those awful joysticks (which, to be fair, did try to innovate by being a precursor to modern analog controls.)