Graphics will always be a "Wow" factor but never a critical one in determining game or console success in the long run. While the PS3 is somewhat unique in this generation in that it just came off of a powerful predicessor, all past generations have shown us Graphically supperior consoles, for one reason or another, have always been outpaced by the weaker. This doesn't mean a console has to be graphically inferior to succeed, just that ones who are typically can outpace their juggernaught competitors. The winner will always be someone who can improve gaming and expand the market, not the one who just improves graphics.
Generation 1
Winner: Atari Pong
Better Graphics: APF TV-Fun, Coleco Telstar
Why Atari Pong won: While not the first, it was the signiture and more recognized home console that kicked off the home electronic "Video Game" craze of the 70s and despite being graphically inferior to later clone products it accessability not only in terms of gameplay but purchaseability made it very desireable. It was the Atari's Pong's accessability to the consumer that made it a success.
Generation 2
Winner: Atari 2600
Better Graphics: Mattel Intellivision
Why Atari 2600 won: Atari 2600 was the one console that tried to excel in a larger library and longer term investment during the chaotic second generation when most electronic comapnies were just creating flash in the pan product with a handful of games to cash in on the craze. Atari's higher quality games (by contrast) and larger library made it a must have while other consoles, even those with better graphics just couldn't compete with its appeal as people were already seeing through the fad. Even the Atari 5200 couldn't pick up where this whirlwind of a console left off and remained but a foot note in its predicessor's wake. The Atari 2600 was a success because it offered a longer term investment in gaming setting itself apart from the short term fad by featuring a large library of higher quality games.
Generation 3
Winner: NES
Better Graphics: Sega Master System, Commodore 64 GS
Why NES won: The NES was not just the first console of the HD 8-bit era, but brought with it refreshing new angles on advertising video game products and their appeal. Following Atari's example, Nintendo featured a massive library of games that were all exclusives by contractual obligation and revolutionized gaming with what is considered by most to be the first true video game controller. Another innovation was the use of a D-Pad for this controller instead of a Joystick which greatly improved gameplay. The NES was a success because it revolutionized gameplay and featured a massive library of stictly exclusive games.
Generation 4
Winner: SNES
Better Graphics: Neo Geo, CD-I, Commodore Amiga CD TV
Why SNES won: SNES, as the successor to the NES, had a great head start, but with staunch competition from the Genesis is struggled much more than its predicessor. In the end though, innovative improvements to the controller and a massive game library would serve Nintendo well once again.
Generation 5
Winner: PlayStation
Better Graphics: N64
Why the PlayStation won: While Nintendo continued on in their time tested formula of continually innovating the controller and supporting a massive game library, Sony cut them off at the pass creating for themselves a larger game library with a cheaper format and cheaper development. By supporting what everyone agreed would be the future of gaming (disc format) and featuring potential for pre-rendered cut scenes, the PlayStation was more than able to compensate for its lack of comparable ingame graphics. In the end, while more expensive as a console, the games were far cheaper making the PlayStation, even in its awkward early stages, too irresistable an alternative to a gaming juggernaught many had grown tired of. Ultimately Nintendo cut it self off by holding itself to too high a standard (PS3) and valuing "quality" over quanity (PS3). In the end despite lagging behind in controller innovations the PlayStation won because it had more and cheaper fans.
Generation 6
Winner: PlayStation 2
Better Graphics: Gamecube, Xbox
Why the PlayStation 2 Won: The PlayStation 2 was not the graphical juggernaught of its era either but revolutionized the concept of long term gaming by featuring Reverse Compatibility, allowing it to play PlayStation Games in addition to PlayStation 2 games. The DVD drive also made it an attractive option for an era when DVD players had yet to be common in every household. The PS2 was a success because it had a ready made game library ready for it in the form of the PS's library which allowed it a smooth transition and unimpeded domination of third party exclusivity.
Generation 7
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While the generation is still undecided, the Wii is by far the cheapest (in terms of hardware and software), revolutionized the controller beyond any leap in the past, expanded the appeal of video game consoles to never before seen demographics, is the only console at this point to actually turn a profit on hardware sales, features true 100% reverse compatibility, has an ever-growing online library of non reverse compatible games, and is fast becomming the console with the most games as its not only the cheapest to develop for but the fastest to develop for (Playstation anyone?). The Wii is the recipe for success by most previous standards which have decided generational winners.