2001: Sega Exits Video Game Console Market
It is hard for a purely game company to compete against hardware and software giants when it comes to design of consoles that can be successful throughout long life-cycles. In 2001 it became apparent that Sega had just made too many mistakes on the market of game consoles and it had to cease making them and concentrate only on game publishing.
For many years throughout its history Sega relied on sales of various coin-operated amusement-type games such as jukeboxes, slot machines and later on arcade video game machines. The devices were rather expensive, but were in very high demand. Over the years, Sega has faced many challenges and changes, but in the nineties, its core businesses were video games, video game consoles and declining coin-operated arcade machines. All the wrongs just combined themselves in the Dreamcast.
The very first issue for Sega to kill its console business was to price its Saturn game console at whopping $399 in 1995. This price was too high [for 1995, with inflation adjustments it would have been around $799+ today] and the console itself was not exactly something considerably better than the direct rivals: Sony PlayStation and Nintendo N64. The price not only stopped Sega's core fans from buying the device, but also slowed down developers from rolling out their new games for the platform. Sega Saturn was struggling. But the problems were only beginning to happen.
On November 27, 1998, Sega launched the Dreamcast game console in Japan. The Dreamcast used off-the-shelf components and therefore was more or less priced competitively at $199 in the U.S. Unfortunately, it did not offer a "next level" of quality for video games compared to Saturn. Moreover, relatively complex architecture, which contained Hitachi SH-4 processor with PowerVR2 CLX2 integrated graphics dramatically enhanced development time for game creators from 6 months to up to about 2 years. At the time, it cased fury among software makers.
Moreover, the Saturn had a really short life of three years, which drove hardware developers away from Sega into Microsoft and Sony. The core audience also chattered: the new console offered only somewhat better graphics and lacked a rich library of brand new games. But there were issues within the title availability as well: it cost more to develop title for Sega Saturn than to design a game for another platform. Saturn simply became irrelevant.
Keeping in mind the lack of engineers and economic power of Microsoft and Sony, Sega just decided to quit leaving the home game console market and to leave it to Nintendo, Microsoft and Sony. The era of mobile devices was approaching and without support from software makers and own hardware developers it made no sense to enter the game. Nonetheless, Sega has a lot of good video games for all platforms now!