You can't just assert a completely different circumstance without postulating what the change is that produces it. Where does this alternative universe first deviate from our own?
Let me demonstrate by offering a different alternative universe.
In this universe, everything is the same until some time in 1989 or 1990, when Sony threatened to take the development that they had put into SNES-CD, and build it into a new home console to compete against Nintendo and Sega, if Nintendo didn't make a better offer regarding share of profits, future development arrangements, etc. Nintendo had been weighing up the pros and cons of letting Sony follow through with their threat. They were about to reject Sony, when an up-and-coming game developer by the name of Satoru Iwata approached Shigeru Miyamoto with an observation - Sony had a lot of cash reserves, and could afford to take losses for a few years in order to enhance their position in the market. Allowing them to branch off in that way could be dangerous.
Miyamoto took the observation to Yamauchi, who agreed that this could be a problem. At a result, at the last minute, Nintendo decided that they had to return to negotiating with Sony, that Sony had a stronger position than they had given them credit for. Despite discomfort with the situation, Yamauchi navigated a new deal between Nintendo and Sony. In this deal, Sony would concern itself more with hardware, while Nintendo would deal with the matter of software, with ownership of the system being split 50-50. Sony accepted the deal, knowing that it would take a lot of time and effort to build studios and franchises that could compete with Nintendo's.
Sony's original plan was to further force Nintendo's hand by unveiling a stand-alone console capable of also running SNES titles, by the name of Play Station... but the new deal addressed Sony's concerns. In 1992, Nintendo would officially unveil the new add-on for the SNES, by the name of the Nintendo Play Station, for release in 1994, with a launch lineup including the block-busting Star Fox, complete with remarkable 3D graphics the likes of which the world had never seen. It would take another two years for Mario 3D to be released, and while it would be well-received and lauded for its camera, it would not be the massive success that it was going to be. Nintendo would thus re-evaluate their 3D Mario plans, and development of a new 2D Mario would begin alongside the development of a new Zelda title to make use of the engine used for Mario 3D.
Meanwhile, Sega would find itself struggling more with the Sega Saturn than they did in our universe, but without two distinct competitors to go up against, it would manage to draw a stronger core fanbase that would sustain it better; meanwhile, issues surrounding load times would lead Sega to decide that the best way to compete would be to outperform the Play Station. This would lead Sega to release an add-on to the Saturn in 1998 that would permit it to have information stored on a cartridge. Knowing that this would up production costs, Sega made it clear to all developers and publishers that the cartridge option would not be required, but that use of it would help their games to run faster and better than on Nintendo's system. This add-on would come to be known as the Sega Titan, named for the largest moon of Saturn. The launch title for this would be Sonic Adventure, which would become an instant hit.
With only Nintendo and Sega in the videogame business at this point, Microsoft would not be concerned with the loss of PC gamers, as the FPS would remain firmly entrenched on PC. Thus, the Xbox would never come to be made.
Which brings us to 2000, when Sega, hoping to get a lead on Nintendo/Sony's development, would announce their new console, the Dreamcast, a collaboration with Philips. This new system, utilising a new idea in the form of a wide array of inbuilt texture assets and basic human models, would prove to be popular with developers, as they would be able to cut their art department costs down without sacrificing appearance. It would be set for release in 2002, alongside the blockbuster Sonic Adventure 2 and the new favourite Shenmue, the latter of which would show off the inbuilt assets remarkably well.
Meanwhile, Sony and Nintendo would have developed their own new system. The new system, called the GameStation (without a space), in an effort to distinguish itself from the Play Station, would feature the award-winning New Super Mario Bros, a pseudo-3D 2D Mario title that would feature the Koopalings in their first reappearance since the SNES. The game would feature a storyline emphasising the Koopalings' position as Bowser's children (Bowser Jr would not have been created, due to the absence of Super Mario Sunshine). This would be released 6 months before Sega's new system, in an attempt to get a head-start.
In 2002, Iwata would be recognised for his foresight and raised to the position of vice president of Nintendo, to sit beside Yamauchi. It wouldn't be until 2006 that Yamauchi would step down and Iwata would step up to take his place. This would result in Nintendo failing to come up with the idea for the DS, and their new handheld would resemble our Vita.
In this generation, Sega would outperform Nintendo for the first time, and Sony would approach Nintendo with an idea for motion controls. Nintendo would immediately see the potential of the idea. This would initially result in the creation of a new peripheral for the GameStation, called the EyeToy. However, this would serve only to be an early implementation, with other motion controls being developed, also as peripherals to the GameStation.
Sega would respond by continuing to develop an idea that they had had for the Dreamcast, where the controller would have a built-in display. An early version of this would be released as a peripheral for the Dreamcast, to not a whole lot of success. However, it would attract enough of a following for Sega to push ahead with inclusion of it in the next generation of their hardware. The new system, to be called the Sega Vid, would have a small touchscreen (not unlike that on the DS) on its controller. They would also release a handheld equivalent, the Sega Div, which would have two screens, with the lower one being a touchscreen.
Meanwhile, Nintendo's new motion-sensing game controller, resembling an old game controller with a camera on the end of it, would revolutionise the FPS genre. Nintendo would announce their new game system, the Nintendo MoveStation, which would use this as the primary control, for release in 2008. This new system, which was to be the first HD home console, would spook Microsoft, who would perceive a threat to the flourishing PC market. The Sega Vid, released in 2007, would already be stealing some of the RTS genre, and thus Microsoft would announce that they are working on a home console, dubbed the Xbox, which would be capable of downloading full games from the internet, an idea that neither Nintendo nor Sega would have had, with only a few small things being downloadable, and online play on consoles being in its infancy (as the Xbox of our universe would not have existed).
Without need to be concerned with the videogame market prior to this, Microsoft would be keeping up with Apple in the emerging smartphone space. While the Apple iPhone would still be the most popular phone, Microsoft's own MS MicroSpeak would have a devout following amongst those who favour function over style. Sony, meanwhile, would have found the strong profits from their alliance with Nintendo to allow them to take further risks in their other businesses, and the newest data media, dubbed BluRay, would take the world by storm; having released two years later than in our universe, it would find itself better-placed to take advantage. Microsoft's competitor, HD-DVD, would find a niche in the data storage field, but would never take off in movie storage.
Microsoft's Xbox would release in 2009, and would struggle to gain a foothold, but it would draw the attention of Valve, whose distribution platform would be starting to gain real support. Recognising an opportunity to get into the home console market, Valve would do a deal with Microsoft to have Steam on the Xbox. This would further weaken the PC gaming market, but MS would not be too concerned at this point, as the Xbox would be strengthened.
The Vid, the MoveStation, and the Xbox would find themselves by 2011 to be neck-and-neck-and-neck, with the MoveStation doing strongest at 70 million. Sega would buy out Philips, while Nintendo and Sony would merge. And so, one of the earliest 3D TVs would come to be branded with "Nintendo", and would include a built-in gaming system. Being somewhat expensive, it would struggle at first. Sega's more modest new HD console, the Vid2, would feature a controller that incorporated some motion sensing, while the Xbox Original (which MS thought would be a funny name for the second system) would come with a controller that attempted to further capture the PC market.
All three would release in late 2013, with Sega's system dominating the first few months.
Oh, and regarding publishers... Square, lacking the funding injection from Sony, would end up being sold to Enix, who would go on to publish Final Fantasy on both the GameStation and the Dreamcast. Rare would remain with Nintendo, but would still end up becoming a shadow of its former self... but Banjo would come to be developed by Retro. Metroid would become a long-forgotten franchise while Star Fox would be the big "hardcore" franchise from Nintendo. EA, having to deal with Sega and Nintendo, would find itself struggling to build its support. Activision would side with Nintendo while Ubisoft would side with Sega. Capcom would churn out Mega Man far too much, and he would become despised by many. Namco would be bought by Sammy, while Bandai would merge with Taito. Eidos would be bought out by Ubisoft, while Crytek would find itself on console; as a result, Free Radical would be bought by Activision, and would develop their new WWII shooter franchise that would take the world by storm.
Sadly, THQ would fail earlier, and would be bought out by Atari. Konami and Koei would merge, while Tecmo would be bought out by Bandai-Taito.
E3 2014 would be highly anticipated for Nintendo's new foray into 3D Mario, apparently to be called Super Mario Galaxy, as well as a leaked title from relatively unknown developer Naughty Dog that looked like a cross between Legend of Zelda and Free Radical's WWII shooter, after having developed Jak & Daxter for the Vid. Others would be looking forward to Halo 3 from MS, or to Sega Battle Stars featuring Mega Man and Tidus from Final Fantasy X, a highly-anticipated competitor against Super Smash Bros, a series that would only be on its second outing and not have any third-party characters in it.
THAT is how you do an alternate universe. Actually, it was going to be about three paragraphs, but it was just so much fun to imagine what path things could take. Things would look so different with that one change.
