Everybody knows how you succeed in business. You create a quality product and sell it at a fair price. As long as your business model meets within boundaries of the market’s supply and demand, you will succeed.
Wrong! Doubly wrong in the loony world of technology, and most impossibly wrong during the tech market of the 1990s. The final decade of the 20th century took our regular laws of capitalism and replaced them with the most psychedelic mushrooms harvested from Alice in Wonderland.
The Market Conditions That Led Sega to the Dreamcast
The tech market of 1990 saw the birth of the modern Internet as we know it, with the World Wide Web invented on a NeXTcube, itself an adored cult classic computer which, like the Commodore Amiga, would die unjustly in the stormy desktop PC market. The decade also saw the advent of the almighty Microsoft Windows operating system, which did to the desktop market what Godzilla does to Tokyo. The Dot-Com Bubble led up to the Dot-Com Crash. Kids got Maserati sign-up bonuses for Silicon Valley jobs whose interview process was “name three HTML tags,” and then two years later they were fired, broke, and homeless.
On the hardware front, Moore’s Law ensured that every technology breakthrough would become obsolete in about eighteen months, while the laws of business dictated that manufacturing, launching, and marketing a new product would take a year at bare minimum (at least to do so competently, like anybody cared about that). Meanwhile consumers scrambled from one device to another trying to buy something that would still be relevant later. Should I get a WebTV, a CueCat, an Iomega Zip Drive? There were no good horses to bet on, since every one of them consistently dropped dead after two laps around the track.
The tech market of the 1990s was bedlam. No different on the game console market:
When you consider all the factors that go into a successful game console, it’s a wonder any of them get off the ground at all. At the minimum, you need the latest bleeding-edge hardware, a substantial game library to attract players, and competent business management – it’s that last part that always gets you!
We touched on the early 90s console wars between Sega and Nintendo before, with our write-up on the wild world of Sonic the Hedgehog. To reiterate and condense the point, Sonic and Mario taught the console world that it doesn’t matter how great your console is if the games aren’t there. In tech marketing, we call this the Killer App: A software program (counting games too) so compelling that people will buy a big hunk of hardware just to run that one thing. Mario sold Nintendo consoles, Sonic sold Sega consoles.
For a while, anyway.
The Shark Tank Video Game Market
By the end of the 1990s, even the formerly shoddy desktop PC market was starting to give consoles a run for their money when it came to games. While console players were happily hopping around on platforms, what was the PC market up to? Oh, nothing much, just Doom, Myst, Half-Life, and every other game that consoles couldn’t manage because they simply did not have the available RAM.
There’s a price point for game consoles, because they are still seen as “family entertainment,” i.e. “not outside the budget consideration of the average kids’ Christmas gift.” A good PC system at the time cost a cool grand. Game consoles, by comparison, had to stay in the low $hundreds. But to prevent having their market share devoured by the more-practical desktop platform, game consoles have to bite the bullet every few years and upgrade to a new generation of hardware. They also have to avoid doing this too fast or they alienate the market, which is prone to buyer’s remorse. That’s when you invest a few Franklins only to find out you could have had a far superior rig if you’d only held out another month.
Lest we forget, the PC market had LAN parties going for it, which were this popular:
Trying to keep up with the PC market is one reason why consoles fanatically release add-ons. The Sega Genesis came out as a 16-bitter while Nintendo was still on the 8-bit standard. Sega marketing relentlessly hammered on its hardware superiority until Nintendo released its own 16-bitter with the SNES. Then the Genesis added on the Sega CD and the Sega 32X add-ons, before finally abandoning the Genesis to upgrade to its own 32-bitter, the Sega Saturn.
Sega marketing always touted their tech superiority to Nintendo. Honestly, throughout the 1990s, you could see Sega’s point. There was a Mac-vs-PC rivalry between Sega players and Nintendo players. Nintendo had its merits, for sure, but just look at Sega and Nintendo side-by-side at any point in the 90s:
On the right: 32 colors, stereo sound, processing speed close to tabletop consoles. On the left: Canned spinach falling to chiptune music. With no context, which handheld game system would you say had the market edge at the beginning of the 1990s?
On the right: Altered friggin’ Beast, in a pixel-perfect faithful port straight from the arcade game, no less. On the left: Dead ducks. Who rules the market in this picture? It’s the dead ducks.
On the right: House of the Dead, a zombie apocalypse first-person shooter which, for its time, blew away most FPSs on the PC. On the left: Doot, doot, de-doo-doo-doot, dee-doo-doo-doo-de-DOOOOT, doot… What’s everybody playing? The little plumber guy.
Sega could not believe this was happening! This would be like if you came out with a Stealth Bomber only to find that Radio Flyer wagons were outselling you. Sega, in its confusion, even released Tetris Plus, reasoning “So it’s falling blocks? Is that what they want? FALLING BLOCKS? Fine, here, take your damn falling blocks! Now will you buy our console?”
And Then Along Came Sony
Just when Sega’s nightmare looked like it couldn’t possibly get any worse, that’s when Sony entered the game. Notoriously, Sega pushed the Saturn to market ahead of Sony’s PlayStation release date, which rushed game developers and didn’t help them get a lead over Sony anyway. Also notoriously, Sega was fraught with internals battles between its Japanese and American divisions, which led to Sony being able to undercut them on price. Previously successful with the Genesis, Sega took a beating on the Saturn that would have killed a weaker-willed company right there.
Meanwhile, everybody said, “What the hell is Sony even doing entering the game market?” Prior to this, they’d been known mostly for video and audio electronics. Before the PlayStation, the biggest selling Sony hardware had been the Walkman cassette music player.
Having had their thunder stolen out of literally nowhere by Sony in 1995, Sega then had to watch Nintendo launch its N64 upgrade in 1996. By 1997, Sega executives, flaming in rage, vowed to release a 128-bitter and start this arms race all over again. They code-named their new system “katana,” if that gives you an idea of their frame of mind at the time.
Sega announced the Dreamcast in 1998. It would have a 56K modem for online multiplayer, built-in stereo, an NEC 3D graphics chip, four controller ports, and an AC plug with no need for an adapter. As expected, it was followed almost immediately by Sony raising their call to the PS2, which is now pretty legendary in game console lore even today.
But fine, said Sega, we’ll take on Nintendo and Sony back to back! At least this time, no third-party tech company is going to come out of nowhere entering this game market, because you’d have to be crazy to enter it right now! Right? RIGHT? Riiiiiight???
Mind you, Microsoft had even less business in the game console market than Sony. We know Bill Gates today as a benevolent philanthropist, but everybody forgets how ruthless he was as Microsoft’s CEO. Gates was worried that the Sony PlayStation would steal market share from the desktop PC. Running Microsoft Windows. So Gates had no reason to launch the XBox except out of pure spite, the same way the Zune was a big ol’ hairy middle finger to Apple’s iPod.
For those of you wondering why Microsoft led such a fanatical jihad against the likes of Linux and Apple when their markets clearly had little intersection, this shows just how paranoid turn-of-the-century Microsoft was. Microsoft would enter a brand new market just to keep another technology company down, even if they were on the other side of the planet from Microsoft’s business base. Microsoft got hit by antitrust lawsuits on two continents for a reason, after all.
Requiem For the Sega Dreamcast
Like the NeXTcube and the Commodore Amiga, the Sega Dreamcast is mourned today as an undeserving casualty of its respective tech market war. Part of this is due to the system’s impressive game library, which was born from a desperate restructuring where the normal development house was split into smaller independent teams and given complete liberty to design as originally as they could.
This led to weirdness like Seaman, voiced by no less than Mr. Spock himself, as a virtual pet who psychoanalyzes you while you raise it.
The Sega Dreamcast was blitz-advertised to launch 9-9-99. It was the turn of the century, with Y2K causing panic in the streets and Fight Club to be released at a Venice film festival the day after the Dreamcast.
The Dreamcast was the last word in sophisticated hardware, with unique peripherals, such as the memory card which was a pseudo-portable unit in itself, that haven’t been tried again since. They even made their own late bid for a subscription Internet service, SegaNet, for which you would get a free Dreamcast and keyboard, which made it a pseudo-WebTV offer. But the Sony PlayStation 2 was making the Dreamcast’s internals obsolete already. Despite this, Dreamcast had an unshakable fan base which couldn’t help but be bowled over by how much love Sega was showing for gamers. Into the early 2000s, the Dreamcast really did feel like you were gaming in the future.
Dat ass, though.
It looked, briefly, like Sega would win the day anyway based on the game library. But it was not to be! Only seventeen months after launch, Sega called it quits. The combined forces of Sony and Nintendo held Sega pinned down, with Microsoft with its XBox spite console gunning from the rear. To this day, Microsoft, despite its advantages, has yet to outsell Sony or Nintendo.
Nothing in particular killed the Dreamcast or Sega in general. It just fell out of the competition, yet another casualty of the console wars like Atari, NEC, Coleco, and Mattel before it. Oh yes, and the Sears Tele-Console.