Aye, the scary thing about this is it brings to question whether Sega has the capacity to make a big game anymore, given that problems of Lost World and Rise of Lyric could have benefited from more time and more money.

I agree that Lost World was pretty good, if rough around the edges.

I consider the deal between Nintendo and Sega to be a major disappointment. It did have potential on paper, but it was cought up by reality. Sega as a company, at least on a management level, lack what it takes to produce high quality content on a regular basis. Every now and then they do manage to produce high quality software, but those moments are rare.
Making money is of course Segas main objective (as with any other company), but during the last 13 years they have changed their approach to that objective. As the game industri has become more main stream, software companies have found it increasingly easier to make money on medium quality games. Why bother making high quality games when medium quality games like Watch Dogs, Assassins Creed Unity and Destiny has such great sales? It is a valid question from a business perspective. And all too often you find the answer to be; Don't bother at all!
Sega's downfall as a game developer is closely linked to them terminating their hardware business. It's unfortunately the only logical "evolution" of their business, as with any large publicly owned software company in the game industry.
And this is also the reason why Nintendo should stay in the hardware business for as long as it makes them profitable (even though they probably could make more money short term by going third party).

SEGA failed.

It wasn't an alliance, it was just Nintendo paying to SEGA the exclusivity of three Sonic games. The one that failed so hard is SEGA.

Failure, and Sega's all to blame.

Umm... yeah.... I think it would be a great idea if we would act as if this genius alliance never existed!

It shows Nintendo did a mistake in using their resources to secure games that were mostly mediocre (Secret Rings wasn't decent?).

Anyway, the problem is on Sega. Why they can't do a simple Sonic game? Generations was awesome, Sonic 4 was good. I think 3D was problem, just do more games like Sonic 4 but replace the stupid new slow momentum based physics and return to the Genesis era physics. Even fan made games can be like it was before, it shouldn't be hard for Sonic team. Back to basics, some decent 75-85 meta games in a row (at least 5 or 6 because the franchise was beaten bad) and maybe the IP will matter again and Sonic fans like me will stop hating them for screwing the franchise.

But let's be realistic, Sega screwed Altered Beast and Golden Axe, all while cancelling the new Streets of Rage. The last OutRun and After Burner games were great, but they didn't get sequels in years, probably because they aren't up to the current Sega standards (of crappy games).

It's all Nintendo's fault for assuming that a SEGA / Nintendo alliance needed any involvement from SEGA.

My take is that the alliance was definitely a failure. Whatever Nintendo paid for the game exclusivity did not pan out for additional sales on both the 3DS and the Wii U nor did it not spell the end of bad Sonic games. We do not know what resources were utilized by SEGA but the games appeared to be rushed at best and overall underwhelming. The game were exclusive so there was really no pressure to be overtly technical (1080p etc), was an opportunity for Sonic to shine but fell flat on its face.

It's hard to see what these last twoish year will bring to the future of Sonic, hopefully SEGA continues to work at it and it comes to a multitude of consoles.

Nintendo should have just co-developed the game with Sega.  I'd rather have a good Sonic game than Yoshie's Wolly World.