@XUL , Yeah I believe this should be moved to one of the Off-Topic.
Now @xxHumorxx , there are many MANY factors regarding SEGA's downfall and in an unfortunate twist, these are things which are still ongoing to this very day.
First off, we have the one thats always been there since day one... SEGA's relationship with their Western branches; SEGA of America and SEGA Europe (though i'll be focusing on SEGA of America). Their relationship had always been rocky from the start... the Megadrive (Genesis) were failures in Japan to the point that it placed third in the Japanese console wars; being beaten by the PC-Engine (Turbografx 16). In Comparison, SEGA of America found great success with the Megadrive in the West to the point that SEGA became a household name, but their methods had always been controversial with SEGA of Japan who were against such things like the aggressive marketing and even their decision to replace the Megadrive's pack-in title with Sonic the Hedgehog.
The messiness between their relations can be clearly seen during the buildup to the SEGA Saturn; Both SEGA of Japan and SEGA of America both had their own independent projects on the console that would succeed the Megadrive. SEGA of America's efforts resulted in the SEGA 32X which was created in response to the Atari Jaguar (yes...) and the 3DO, while SEGA of Japan's efforts resulted in the SEGA Saturn. That said, SEGA of America did in fact make suggestions to try to improve the SEGA Saturn during development; Sony, bitter from their falling out with Nintendo over the SNES-CD, initially turned to SEGA who's American branch was more than happy to work with Sony... but SEGA of Japan? To quote...
"They don’t know how to make software either. Why would we want to do this?"
So yes... in some alternate reality, the Saturn was a collaboration between SEGA and Sony but instead... SEGA ended up creating their own enemy. Yet another proposed attempt by SEGA of America to have a say on the Saturn involved a partnership with the up-and-coming NVidia to create a graphics chip for the Saturn since SEGA of America felt that the next generation of gaming would involve 3D polygonal graphics. SEGA of Japan declined, choosing to instead focus on making the Saturn a 2D powerhouse... only really giving it 3D capabilities once Sony unveiled the PlayStation and by then it was too late... the Sega Saturn was way behind its competition; the PlayStation and eventually the Nintendo 64. Combine this with a focus on games that mainly appealed to the Japanese market such as RPGs, Visual Novels
as well as games which were mainly 2D and a new SEGA of America CEO who was mostly against such games (3D first and no RPGs!) and you have a recipe for disaster that was the Saturn's Western launch.
The examples of SEGA of America and SEGA of Japan's falling outs go on forever and have caused many things such as this franchise's obscurity in the West, the state of the "Shining" franchise and the various un-localized titles (and why PSO2 was delayed).
Second off, being 'first' doesn't always mean being the 'best' nor does it guarantee sales. The SEGA Dreamcast was ahead of its time and its launch was handled much better than the Saturn, there was lots of hype surrounding the console, its games and its features. However, the moment the PlayStation 2 was announced Sony stole lots of SEGA's thunder... more advanced graphical support, multimedia features, etc... especially the Multimedia! The PlayStation 2's use of DVDs meant that games could be larger than SEGA Dreamcast's propiatory "GD-ROM" drives which could store around 1 GB of data and which also made the PlayStation 2 a cheap DVD-Player compared to what was out in the market at the time. Despite a good start, over time less and less Dreamcasts were sold to the point that SEGA had to begin selling the Dreamcast at a loss to try to compete with the PlayStation 2. The writing was on the wall and SEGA decided pulling out of the console market was for the best...
In the end though I don't consider this a failure... even if they stopped producing consoles, SEGA continues to produce games to this day and have reached out to a wider audience by releasing on other platforms.
To finish off... i'd like to correct some things you said as I feel that SEGA's influence is a bit overestimated. Phantasy Star Online is neither an MMO nor was it the first... games like Everquest and Ultima Online as well as numerous other 90s MMOs had been a thing way before Phantasy Star Online even released. When developing PSO, Sonic Team did actually state in an interview one time that they were against making the game a "Massively Online Multiplayer Game" due to:
- Not wanting to continuously update the same game for many years.
- Dreamcast's lack of Harddrive support to store said updates.
- The amount of time it would have taken to program servers for a true 'persistent world'.
As such, Sonic Team used Diablo as inspiration for Phantasy Star Online. Phantasy Star Online ultimately became the first console "Online RPG" to be widely known (This is actually, SEGA's SECOND attempt though, their first being "Dragon's Dream" on the Saturn). I won't deny PSO's influence on many things... for one, it did introduce the concept of Online RPGs to Japan (MMOs were mainly a PC genre and PC Gaming isn't that popular in Japan...) and it did lead to the creation of many features which are used to this day. Around the time of Phantasy Online Ver. 2's release, the Dreamcast was losing in sales and Sonic Team had shifted gears to port the game to the Nintendo Gamecube... which did end up benefitting the franchise...
That said though, this post is long as it is... the Rise and Fall (and potential resurgence?) of the Phantasy Star franchise is a separate topic on its own...
Also... the way PSO2's story is laid out is the result of the NA version being based on the current JP version which streamlined Episode 1-3's story due to complaints regarding the Matter Board... again another topic on its own.
Other MMOs did have stories also... plus I don't think I remember PSO1's Story ever being a selling point... its just kinda there for those who want to play and enjoy it but the way its presented is bare bones without looking deep into some things.