Why did the Dreamcast fail? Sega's marketing veteran looks back

Tadashi Takezaki, these days, works at Sega in the position of "head of project implementation department, president's office," which doesn't describe very well the things he's been involved with since joining up in 1993. A veteran of Sega's marketing and PR department in Japan, Takezaki was involved with the launch of both the Saturn and Dreamcast — Sega's final two home game consoles. He was also the man who wrote an emotional online message "to all Sega supporters" in January 31, 2001 to announce that Sega was halting Dreamcast production and becoming a third-party software company.

That certainly wasn't the plan back in 1998, when Sega launched a new system that did its best to learn from previous mistakes. "When we developed the hardware, we looked over the mistakes we made with the Saturn and completely reworked our approach," Takezaki recalled in an interview with Famitsu magazine published this week. "Developing for the Saturn and its two CPUs was difficult enough in itself, but the development environment was also chided for being too lacking. So we fully fleshed out our libraries to make development easier. Even today, the Dreamcast gets a lot of praise for its dev environment."

The Dreamcast was more than dev-friendly, though — it was also casual-friendly, going completely away from the hardcore gamer-oriented trend they established with the 16-bit Genesis and 32-bit Saturn. "We did our best to make the console approachable to a mass audience," Takezaki said, "from the system's design and coloring to the name itself. As a result, we went with a compact, simple design with a warm color scheme, something completely different in look from older Sega systems. I think it was the console that we took the most complete marketing approach with."

So why did the system fail? "In essence, it was a pure matter of cost," replied Takezaki. "It was because we were forced into a discount war when we were already losing money on system sales. Sony [whose PlayStation 2 came out March 2000 in Japan] was part of the team that developed the DVD standard, and they could develop a system around that completely internally with their own chips. Sega, meanwhile, was buying everything from outside companies, so it was at a distinct cost disadvantage. We couldn't easily cut costs on manufacturing, the software wasn't selling the numbers it used to, and then we were forced to discount the system."

It's hard enough to balance hardware costs with profits, but with everything Sega attempted in one go with the Dreamcast, the situation was even more dire than usual. "It's one of those things where the more consoles you sell, the more you lose, so we had to cover that with software sales," Takezaki explained. "But those sales weren't going up, and at the same time, we were busy trying to bring the idea of online gaming to users with the system. Our concept with the Dreamcast was to bring something new to gamers, to build an environment where they could connect with each other from around the world. Sega's whole business model was to build a userbase of cheap network devices, then provide services and products through the Internet; the Dreamcast was our ticket to making that dream come true."

A lot of people in the industry have commented that Sega perhaps pulled the trigger a few years too early with the Dreamcast and its online-centric design. Takezaki doesn't think so. "I think it was the right choice to aim for a net-centric strategy at that time," he said. "However, we went through with it even though our break-even was far too high for it to work. The idea of accessing the net for free at that time was simply fantastic, and we were the ones footing the bill, so in a weird way, Sega was the company paying out the most money for its users at the time."

Looking back, Takezaki sees the Dreamcast as an incredibly revolutionary system, but one that was probably destined to be Sega's last no matter how sales turned out. "I think the Dreamcast really symbolized the changing of the guard that took place around that time," he explained. "PCs really began to evolve and improve at a dizzying rate beginning then, and it made people begin to wonder if a console tuned exclusively for games had any chance of surviving any longer. Still, our experiments with network gaming led to things like Phantasy Star Online, and lots of people are still enjoying that series. The seeds we sowed with the Dreamcast are finally bearing fruit at this point in time. In some ways we were going by the seat of our pants, but it was part of the Sega credo at the time -- if it's fun, then go for it."

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