The Sega Dreamcast was a gaming console that failed to compete with Xbox, PlayStation 2, and GameCube. It was released in 1999 and discontinued just two years later. Amid disagreement over Sega’s future, the company pulled out of the console business and became a third party developer. Here is why Sega Dreamcast failed – in a nutshell.


Sega’s advertising focused on the wrong selling points. The slogan “It’s thinking” was perceived as ambiguous and inadequate. It failed to point out the benefits of the console. In stark contrast, Microsoft’s advertising focused on the console’s power, more specifically on the huge “X” at its center. Sega was unable to attract long-term interest in their product and advertising was partially to blame.

Bad Business Decisions

Sega bought sports game developer Visual Concepts prior to Dreamcast’s launch to produce games for Dreamcast. Electronic Arts, who published the popular NBA Live, Madden, and FIFA series, demanding the exclusive rights to produce sports titles for Dreamcast. Sega rejected the demand. This turned out to be a bad business decision, because EA titles were getting more and popular. The 2K series that Visual Concepts went on to develop would prove to be critically acclaimed, but the vast majority of consumers chose EA’s brand.

Financial Problems

Dreamcast’s launch was successful in North America, but sales began to decline despite several price reductions. The console was sold at a huge loss. This had the effect of the company reducing R&D investment. As they didn’t house dedicated servers anymore, they couldn’t continue the broadband experiment they were planning to venture into with the system. The company started losing third party support and everything went downhill. Ultimately, Sega gave Dreamcast up.

The Failure in a Nutshell

The combination of these three factors brought the untimely demise of the Dreamcast, which had a lot of potential. Sega could have made a profit even if they sold at a lower price – if the console had been built slightly cheaper. However, they decided to go for expensive components, which was a mistake as Sony’s cheap build attracted a much larger audience.