In its first 24 hours on the North American retail market the Sega Dreamcast proved to be a resounding success.  It was accompanied by heavy promotion on such youth-oriented television services as MTV, with a nationwide touring blitz accentuated by customied vans, mobile kiosks, and enthuastic support by several popular music acts such as Limp Bizkit and Filter.  Many videogame magazines such as EGM and GamePro devoted their September issues to the Dreamcast launch. Only those lucky enough to place advance orders were guaranted to get a Dreamcast on the first day it hit the store shelves.  Over 15,000 retail locations across the continental United States reported brisk sales, with many selling out the first day.  Total Dreamcast-related revenue came to the approximate figure of US$97 million.  In comparision, that is more than three times the take from the opening to the much-ballyhooed sci-fi movie Star Wars: The Phantom Menace.  The U.S. Dreamcast launch far exceeded Sega's own expectations and it forced the rest of the videogame industry to sit up and take notice. There was no doubt about it - Sega was back.  This didn't come as any surprise to industry observers who had watched the momentum build and the audience surge.  EGM put it this way, saying, "Hardcore game freaks - the type who still trek to the arcades, who've imported a game or two, who passionately defend their console - have always gravitated towards Sega systems.  The Dreamcast is no exception, and Sega knows it."    The future seemed bright for Sega and its licensees as income from all those sales began to pour into their cash-strapped pockets.
     Unfortunately, Sega's traditional screw-ups began almost immediately.  There was some confusion in market order shipments, meaning that a lot of first-time American buyers wound up with Japanese copies of their new games, which of course would not work on their American-only consoles.  Midway aggrevated this by releasing Ready 2 Rumble Boxing with improper drivers, resulting in a lot of angry customers with non-working copies.  Also, Sega decided not to release its own arcade-style light gun in America following intense media hype over the Columbine school shooting, which meant that American gamers were forced to contend with inferior third-party designs that simply weren't up to par.  On another controller-related note, almost everybody criticized the standard Dreamcast joypad as being too compact and awkward (as if it had been designed only for the hands of small children), and the third-party controller business subsequently boomed as a result.  And were were the VMUs?  The Sega VMU was in dreadfully short supply during the console's first three months on the market, and many gamers didn't want to have to put up with third-party VMUs that lacked the standalone gaming functions of the Sega design.  Finally, the promise of Internet gameplay, the single most touted feature of the Dreamcast, was conspicuously absent from all overseas launches.  Sega quietly announced that the Dreamcast Network would be delayed until "sometime in 2000."
     Speaking of which, perhaps it is time to note the Dreamcast's other two overseas launches.  Billboards and ad copy had been appearing all over Europe and the U.K. with a single word in large print, upon which a small sticker appeared to have been affixed:  PlayStation - Best used before 14/10/1999.  The date is listed day first, European fashion.  The European launch was just as big a success as the American one by all accounts and featured the largest launch list of software titles yet fielded by a Sega console.  Unfortunately, things would not go as smoothly around the world a month later in Sega's last major market to receive the Dreamcast.  Dare we mention the Australian launch in November, which was a disaster by any measure?  No software, no accessories, and a shortage of consoles due to major screw-ups in processing advance orders?  They're still talking about it down in "Oz." 
     It came as a complete surprise to everyone that the #1 best selling title of the U.S. Dreamcast launch was neither Namco's gorgeous-looking blade fighter Soul Calibur or Yuji Naka's eagerly awaited Sonic Adventure.  Instead, first prize went to Visual Concepts for NFL 2K, which just narrowly edged out Sonic Adventure in launch sales.  This was despite the fact that Sam's Club was selling Sonic as a pack-in with every Dreamcast console that it sold.  Sega's all-new 128-bit football game had wowed American gamers with its incredible realism, and there was a general clamor for Electronic Arts to begin supporting the Dreamcast with ports of the Madden NFL series and other popular titles from its EA Sports lineup.  EA stock dropped over 27 points on the New York Stock Exchange over the fourth quarter for the simple reason that EA's investors were furious at them.  The company had no Dreamcast titles for the 1999 holiday season, seemingly content to pump out releases for the dying PlayStation, and this was the sole reason for the company's poor market performance that year.  EA never listened, so Sega fans were never able to look forward to the EA Sports line on the Dreamcast - thus breaking the long legacy that EA had stated with Sega and the Genesis a decade earlier.

     The Internet gaming issue proved to be a real sore spot with many gamers and Sega was quick to acknowledge this problem.  At the same time, however, it were doing their best to avoid the rushed development pace that had tripped it up previously in Japan and which many industry experts agreed had caused both the older Sega 32X and Saturn consoles to fail.  Sega did not want history to repeat itself; therefore, Sega was taking their time in order to get things right.  So, while gamers were treated to constant press about the up-and-coming Dreamcast Network, and while they drooled over the possibility of a new Phantasy Star RPG as part of that network, Sega secured backing for its online gaming plans.  The signing of AT&T in the U.S. and British Telecom in the U.K., among others, put some major ISPs in Sega's corner.  Every single Dreamcast came with a modem (some early overseas units had 33.6kbaud models, all U.S. models had 56kbaud), and every one came with free Internet software.  Sega president Shoichiro Irimajiri was even quoted as saying that Sega of Japan would offer the system's first broadband or DSL network in Japan as early as 2000, which was heady news indeed for Japanese gamers.  Modem and ISP now, network games shortly thereafter, Internet play within a year of launch, and broadband play within two years.  That appeared to be Sega's plan in late 1999 and it was going to take a major event to shake them from it.
     One other item deserves brief mention at this point.  Many industry wags were already criticizing Sega for not using a DVD-ROM with the Dreamcast.  The high storage capacity of DVD combined with its growing acceptance seemed perfectly natural to experience-hungry gamers who wanted every extra that they could get - cost notwithstanding.  It was precisely the cost reason that had ultimately caused Sega to reject DVD-ROM in favor of GD-ROM - its own proprietary variation of CD-ROM that permitted up to 1 GB of storage per disc.  Sega's Charles Bellfield reminded critics of this point.

Today, and certainly ... within the next two years, DVD technology is prohibitively expensive for a console product - that is, if you want to focus just as a low-cost piece of hardware that delivers the highest performance games.  If you want to be just an entertainment black box, and you can feel you can charge more for it, that's a different story.

     This is perhaps the best time to take a look at the chief competition that would develop for the Dreamcast:  the Sony PlayStation 2 (PS2), the Nintendo GameCube (code-named Dolphin at this point), and a third contender that came out of nowhere - Microsoft's XBox.
     Sony's PS2 promised to be a superior box but at almost double the retail price (US$370).  Sony was hyping it as the ultimate entertainment solution for the home, and there were many at Sony who hoped that the new system would completely reshape not only videogames but the entire industry itself.  Sony expected that its market would take up its dream and bring others into the fold, or as NextGen quipped about Sony's ambitions, "If we build it, they will come."  PS2 would not hit the North American market until late in 2000, but already the hype was building.  Was Sega concerned?  Yes, but it wasn't about to lose any sleep over Sony's rather grandiose pronoucements about its up-and-coming system.  "If Sony wants to sell a million PlayStation 2 units to 55-year-old men, fine - let them do that," quipped Sega's Charles Bellfield.  "We are literally a videogames company.  You'll never hear us say we are an entertainment company.  Our audience is the 12-to-24 year old male gamer.  We're core to that audience."  It was yet another biting observation from the quip-throwing Bellfield.
     Nintendo was caught without anything that could hope to compete against the superior performance of the Dreamcast, as its Dolphin project was still at least two years away from producing a marketable system.  Instead, they released Donkey Kong 64 just in time for the 1999 Christmas season.  Most critics (and fans) saw it for the empty gesture that it was:  a hyped-up version of Banjo Kazooie that required the Expansion Pak included with the game.  Sales were strong, but not quite as strong as Nintendo had hoped.  It would prove to be one of the N64's last big hits.
     The most surprising announcement of the year was the confirmed existence of Microsoft's XBox project, which was the software maker's attempt to come up with a dedicated gaming platform based on PC compatable hardware.  The software giant promised to be serious competition for existing videogame companies yet Sega remained surprisingly unfazed.  After all, Microsoft had cut its teeth on the XBox concept by helping Sega with the Dreamcast, even lending its "seal of approval" and a modified version of the WindowsCE operating system to the new platform.  As a result, it was dreadfully easy to port PC games to Sega's new platform, and knowledgeable industry wags hinted that XBox could actually help Sega in the long run.  It soon became known that Sega's Shoichiro Irimajiri had actually been given a demonstration of an XBox prototype and news of this sparked yet another round of rumors and speculation.  Unbeknowst to many but watched by all concerned, the Sega-Microsoft partnership would continue to influence both Sega's and Microsoft's long-term plans for their respective companies in ways that no outsiders could anticipate.

     By October, Sega of America had sold well over half a million Dreamcast consoles.  518,000 systems in approximately one month.  That is about the same as the total number of 32X systems that Sega sold during the thirteen months that it was on the market.  By the beginning of November Sega had sold over 750,000 consoles, and by the end of the month had sold over one million units.  At that rate, Sega expected to break the two million mark in the U.S. console market by March 2000, if not before, and Sega's Peter Moore was later quoted as saying that the company hoped to have an installed base of six million units by the end of 2000.  Over 30 Dreamcast titles were on U.S. store shelves by year's end, with approximately 250 titles in all markets either available or under development.  That was far more than any other videogame console's first year to date, and considerably above the 140 projected by Bernie Stolar before launch.  In comparison, this figure is about the same as the total number of N64 cartridges that Nintendo had sold in the first three years that its underpowered system had been made available in all major markets.
     There was no question about it.  The U.S. Dreamcast launch was a success by any measure one might use.  Having a sizeable software library so soon after launchtime had one of Sega's goals from the beginning and it had certainly played its part in the success of the launch.  Sega's twofold objective for its major markets had been to first promote their machine, and second to build up a large library of decent titles in record time.  It can be said that they successfully achieved both goals.  "It's been amazing to see publishers step up in genres that I didn't think would happen this soon on the platform," said Sega's Neal Robison, director of third-party support.  "We're already going to have RPGs by Christmas [note - UbiSoft's Evolution and NEC's Seventh Cross hit U.S. store shelves around 20 December 1999], which is amazing, because usually those things take a really, really long time to work on for a platform.  We've obviously got the benefit of the Dreamcast having been out for a while in Japan."  Sega marketing VP Peter Moore perhaps put it best when he observed, "Going forward, we're building the Dreamcast gaming community."  The ever-quick-to-comment Charles Bellfield added his own insights over their anticipated flood of Dreamcast releases set to start in 2000.  "All the categories are going to get even richer, even deeper going forward."  Sega's competitors took note of this fact as they continued working on their own respective 128-bit consoles.
     Unfortunately, over in Japan, that anticipated flood of additional titles had significantly slowed.  Namco, who was primarily responsible for the word-of-mouth leading up to 9.9.99 with their realistic looking fighter Soul Calibur, practically halted all Dreamcast development until the end of the year.  Other developers, such as Konami (authors of AirForce Delta and Castlevania: Resurrection), also followed suit. The reason for this troubling trend in the lack of new Japanese-produced Dreamcast titles did not become immediately clear until mid-September, when the 1999 Tokyo Game Show was held.  As it turned out, almost everybody who was anybody in the Japanese videogame industry had been hard at work readying themselves for the debut of Sony's new PlayStation 2 at that show.Tekken Tag Tournament, which had been long rumored as a scheduled for a Dreamcast release, popped up as one of the prime launch titles for Sony's new platform.  There were also about a dozen or so other titles that Sony demonstrated for the PS2 at the time, including the eyeball-popping Grand Turismo 2000.  Everything shown looked as good as anything the Dreamcast was currently delivering, and one look at the system specs on paper boded ill for future Dreamcast third-party support.  It was now painfully obvious why Japanese developers had shifted their efforts.  While it was not yet out on the American market, it could in all honesty be said that the PS2 had finally "arrived," and everybody wanted to be in on the action when it came.
     Sega's narrow window of opportunity in the North American and European markets was now closing.  They would no longer be alone in the 128-bit home videogame console market.  The Dreamcast was going to have to compete with the PS2 in order to ensure its continued survival.

     Sega ended the year in typical Sega fashion - lots of gtrand announcements along with that one bit of inconvienently timed bad news to louse things up. There was the preview of the planned ZipCast ZIP drive (no more VMU save game size limits!) and with it came a look at the very first Ethernet adapter designed for a videogame console.  Do the words "cable modem" come instantly to mind?  They should, gaming fans.  Both were slated for release "sometime in 2000."  There was also the news that NEC and Videologic, the makers of the Dreamcast VDP, had completed a plug-in replacement for their well-respected PowerVR 2DC.  The new chip was 100% compatible with the old one, but added so much 3D processing ability to the system that it was said to run rings around the most powerful 3D graphics processor available at that time - the highly praised nVidia GeForce 256.  So much for the claims of sitting around and doing nothing as Sony tried to seize for its own the polygon-pushing prize.  Sega had promised that the Dreamcast would be both expandable and upgradeable, and it looked as if they were keeping their word.  Also, in a completely unrelated development but one that caused classic gamers to rejoice, Sega of Japan (in conjunction with NEC) announced they would be making over 300 G/MD and TG16/PCE "ROMs" available on their website for use on the Dreamcast under emulation.  It was the first time that such a service had been offered by a OEM (original equipment vendor) on the Internet, and Nintendo was quick to follow suit by announcing plans for N64 emulation support of its older NES and Super NES titles.
     Dreamcast sales for the Christmas season were very strong.  In many locales, retailers either sold out of their consoles or came very close to doing so.  Sam's Club, the Arkansas-based discount warehouse chain, found that its Dreamcasts were selling out nationwide - no doubt due to the fact that they included copies of the ever-popular NFL 2K along with every console sold.  Other titles to sell out by the end of the year included Soul Calibur, Sonic Adventure, and the just-released RPG Evolution: World of Sacred Device.  In fact, supplies had dropped so low by mid-December that Sega was forced to revise its sales figures upward.  The number of Dreamcast consoles sold in the North American market officially broke the 1.5 million mark shortly before the end of 1999, and the venerable videogame company was practically basking in its market resurgence.  "Dreamcast" was the word on the lips of many expectant videogame fans for the holidays, and not even the revival of Nintendo's resident primate could withstand the onslaught of Sega's new-found popularity.  In fact, Business Week named the Sega Dreamcast as one of the 30 most innovative products of the year in its final 1999 issue.
     All of the good news was eclipsed by the words of Sega chairman Isao Okawa, though, when he was quoted by many sources at the end of the year as stating that Sega was "getting out of the hardware business" after the Dreamcast.  In short, the the Dreamcast was going to be Sega's very last videogame console.  You can well imagine the sinking feeling that Dreamcast fans worldwide felt at that news, and lots of wags who still revel in the twin failures of the 32X and Saturn were quick to say, "We told you so."  It was a stunning admission from a company that seemed to be getting back on its feet in the home videogame console market, and Okawa's statement effectively threw out everybody's projections of Sega's future plans.  Sega was quick to counter the move, publically assuring its fans that Dreamcast support would continue.  Still, one could not help but wonder why Okawa would make such an announcement given the success of the Dreamcast, and all signs pointed to Microsoft.  Both companies had worked well together in their respective Dreamcast efforts, and rumors began to quietly spread that Microsoft was planning to tap Sega's considerable videogame experience and resources for its up-and-coming XBox system.  It seemed a rather absurd way for Sega to end a year that seemed to have largely went their way.

     And so ended 1999 - a momentous year for American videogamers, with the promise of more just over the horizon.  A paradigm shift had just shaken the videogame industry, and Sega was the company that had set the lead which the rest would follow.  Would Sega succeed in its designs?  Or were the rumors about Sega's future hardware plans actually true?  How was the PS2 going to impact Dreamcast sales?  What about XBox?  Could Nintendo survive against the dual 128-bit threat until it could get GameCube out the door?  What was the deal with Sega and Microsoft, and how would this affect Sega's plans?  Above all else, when were there going to be more first-class titles for American and European gamers - especially in the obviously delinquent RPG category?
     Only time would tell.

A new century, a new market

     The year 2000 was unique in many ways.  It was the last year of the 20th century, as well as the last year of the second millenium AD. The year 2000 was a momentous time for the videogame industry, because this was the year that 128-bit consoles were expected to establish their full dominance over the home videogame market.  The most eagerly anticipated of these was the highly hyped Sony PlayStation 2, whose North American debut was tentatively set for 20 September 2000.  It was clear to anybody with eyes to see that Sony's plan was to seize the new 128-bit market and make it entirely their own.  To them, the Dreamcast represented little more than an advance man working their audience free of charge, prepping their intended market for the real pleasures that Sony would be unveiling later that year.  If Dreamcast was 1999's preview into the future of videogaming, then the PS2 release in 2000 would be that future fully realized - or so they made clear to both  employees and potential customers alike.  To cement their goal, Sony of America began putting together a US$150 million ad campaign designed to deal with any possible move that its current (and future) competition could offer.
     So much for Sony.  In the meantime, Sega continued with business as usual - much to the pleasure (and occasional chagrin) of both fans and vendors alike.  They had the successes of 1999 upon which to build and were determined not to commit Nintendo's past mistake of resting on the laurels of prior triumphs.  There were the occasional blunders, to be sure, as might be expected of any successful company combating its competitors, but Sega had a lot riding on the line.  They had achieved their first two goals in the North American market - successfully launching the Dreamcast and building up a large library of titles in a short time.  All eyes were upon them as they sought to achieve the next stages in the Dreamcast's planned future - continue expanding the software base, ramp up and launch the Dreamcast Network, and somehow survive the PlayStation 2 launch.  If it could just sell all two million of the consoles manufactured for the North American launch by June, as well as another million or so in Europe, then it just might finally start turning a profit on its US$600 million investment.  Sega had ended 1999 with projected losses of US$100 million.  Sega had eight months left to make a profit before PlayStation 2 hit American shores, so the company's financial future was now riding on its Dreamcast gambit.
     It was make-or-break time for Sega.  The year 2000 had to be "the year of the Dreamcast" ... or else.

     The Dreamcast's immediate future was looking quite rosy at the beginning of the year.  Holiday sales had met or exceeded expectations and the word "Dreamcast" was now on everybody's lips.  It was a good thing too, because the first generation of DC games was about to give way to its second and even larger wave of releases.  "Even if no other software ever came out for it," noted NextGen, "Dreamcast is a good buy.  That said, enough software is coming out for the system, and the early sales are so strong, that we think Dreamcast will be a viable system for some time to come - even though [both] Dolphin and PlayStation 2 will surpass it technologically."  Regarding its Y2K goals, Sega was determined that no category would be left uncovered and no stone would be left unturned, but all the while it would making sure that development (as well as translation and porting) of new and even better titles remained firmly on track.  In the meantime, Dreamcast fans salivated over what Sega and its licensees planned to offer in 2000 and enjoyed a 20% or so reduction in the retail price of Soul Calibur and other selected first-generation Dreamcast titles.  Yes, things were looking good for Dreamcast gamers.
     The resounding success of Dreamcast holiday sales was also echoing in the corridors of Sega corporate, yet no one forgot that they still had a job to do.  Company executive Peter Moore discussed Sega's future plans in an exclusive interview with NextGen magazine.  When asked how many units Sega would have to sell in order achieve success, Moore responded, "Mutliple millions."  He then went on the explain his answer.

It's the velocity that you hit certain milestones which is important, and the momentum you build, but I think the industry has grown so dramatically that a million is no longer critical mass ....  Five million is critical mass!  I don't think anyone can turn their back on you, in any industry, if you're talking to five million dedicated customers .... We're committed to our two million sold through [to the customer] from March 31.  Then we have to go back to Japan and work on product planning for fiscal '01.

If 'competitive platform' launches on 9/20 at US$299 and Dreamcast is available at US$199, Mr. Fence-sitter, where's your money?  So we're very bullish that if and when this thing launches, we'll have established a major beachhead in terms of installed base.  Now obviously that's going to be millions.  Exactly what we'll be able to add onto the two million we'll already have had from March 31, I don't know, but it could be anywhere from as low as three million to as high as five million.

The second wave

     It seemed to those planning their purchases for the upcoming months that Moore was right on target.  Sega was going out of its way to widen the Dreamcast software base.  This was entirely in keeping with Sega's software plans, as you will recall, and all markets were scheduled for a virtual "software blitz" during spring 2000, with the months of February and March appearing to be the most crucial.  If this does not impress you, then perhaps the titles scheduled for release during this period will. Carrier ... Crazy Taxi ... D2 ... Dead of Alive 2 ... Draconus: Cult of the Wyrm ... Elemental Gimmick Gear ... Gundam Side Story 0079 ... Legacy of Kain: Soul Reaver ... NHL 2K ... Rayman 2: The Great Escape ... Sega GT ... Tech Romancer ... Time Stalkers ... and so on.  While we're at it, let's not forget the eagerly anticpated release of Resident Evil - CODE: Veronica, considered by most Resident Evil fans as the true sequel to Resident Evil 2 and which would win Sega more converts from the fading Sony PlayStation that any other game during this time.
     Crazy Taxi deserves special mention at this point, because it was the right game at the right time for Stateside arcade aficianados everywhere.  It embodied everything to be found in an arcade classic - great graphics, top-notch sound, and a deceivingly simple premise resulting in surprisingly sophisticated yet entertaining gameplay.  In fact, the game was so well received that EGM devoted their 02/2000 cover story to the Dreamcast port, and it received similar accolades in other industry trades as well. EGM's article made the point as to why the game was such a resounding success: "Simple is effective."  Crazy Taxi promised to be the first real American must-buy title for the console, just as Project Seaman was to the Japanese market mere months before.  At the other extreme was Resident Evil - CODE: Veronica, the latest installment in Capcom's highly popular survival series.  It was the first in the Resident Evil series to make use of both a full 3D environment and stunning 128-bit graphics throughout, and the jaw-dropping visuals were the talk of the gaming trades and zines for months on end.  Add to that certain select enhancements to the game, such as real-time environement rendering instead of pre-rendered backgrounds, couple it with such user-demanded features as 180 degree quick-turns and multiple independent weapon targeting, then top it all off with a well-written (and acted) storyline, and you had in your hands an involving videogame experience that was guaranteed to be a success.  600,000 units were already on pre-order in Japan before the game's release, and potential U.S. buyers were busy filling pre-orders (or importing the Japanese release) long before CODE: Veronica shipped Stateside.

     The second generation of Dreamcast software in the U.S. offically kicked off on 1 February 2000 with the simultaneous releases of Crazy Taxi, Tee Off, Wild Metal, and Zombie Revenge.  By the end of the week, Sega's Crazy Taxi for Dreamcast had ousted Square's Final Fantasy VIII for PlayStation as the #1 best-selling title across consoles on the GameStop/Babbages retail sales charts.  In fact, all three of their top-selling titles were second-generation Dreamcast games: Crazy Taxi, Legacy of Kain: Soul Reaver, and Zombie Revenge. Crazy Taxi peaked at #3 on the NPD Group's official videogame chart, and not far behind was Sega Sport's release of NHL 2K for Dreamcast. The sudden surge in Dreamcast console and software sales so soon after the holidays caused many industry insiders to begin predicting that U.S. Dreamcast console sales would indeed break the 2 million mark by the end of March.  This was some two full months ahead of Sega's own projections, and credit is rightly given to Dreamcast's second generation of software titles.  In fact, sales were so strong that Sega of America confidently reiterated Peter Moore's prediction of  6 million Dreamcast consoles sold worldwide by March of 2001.
     Meanwhile, over in Japan, Capcom released what many consider in retrospect to be the finest Dreamcast game ever coded and one of the classic video games of all time.  The Japanese debut of Resident Evil - CODE: Vernoica thundered across the software charts in February, selling 377,377 copies sold in just one week.  It easily claimed the #1 position, ousting Sega's own Shenmue, which had finally been released just before Christmas 1999 and had sold about 400,000 copies to date.  Shortly thereafter, Sega GT for Dreamcast was unleashed on the Japanese gaming public.  Sega's "Grand Turismo 2000 killer" immediately hit the Japanese video game charts in the #1 position, ousting Nintendo's long-running Pokeman franchise for top honors and selling some 93,691 copies sold in just four days.  By the end of the month sales of Capcom's CODE Veronica had exceed 450,000 copies, and sales of Vivarium's Project Seaman had exceed 440,000 copies.  All of the buzz surrounding Dreamcast and its successful second wave of software caused, Bizzare Creations coder Martin Chundley to say this about Sega's new console:

Where else can you get a machine to connect you to the Internet for only US$200 AND be able to play next-generation games on it, both off- and on-line?  As the quote goes, "If you build it, they will come."  If we [developers] build the right online games, then the gaming public will be more than ready to jump on board.  Quake 3 would be great!"

The problem for Sega has come in due to the fact that Sony has done an impeccably evil job of making sure that, from a hardware standpoint, the Dreamcast was NEVER in developer's minds.  From nearly the first day Dreamcast devkits went out, games have been built under the shadow of a promise of something better, and in the same sense that it is hard to go back to Soul Blade (PSX - ed.) after witnessing a game like Soul Calibur, every hardware limitation they have encountered with the Dreamcast has made the PlayStation 2's seemingly limitless potential seem all the more attractive.  So attractive, in fact, that companies seem to be doing something that in this business borders on insanity, or at the very least, severe stupidity:  walking away from a near-certain profit.

Rise of the pirates

     One of the biggest surprises in the first quarter 2000 was Sega's stand on the Dreamcast modchip.  Hong Kong hackers had managed to succeed in their efforts to break the Dreamcast country code scheme, and the first unofficial Dreamcast "modchip" (as they are known) became available for sale on 20 October 1999.  Rumor had it that this modchip had been made in order to enable the playing bootleg GD-ROMs of U.S. games floating about the Hong Kong black market.  Sega remained silent on the issue until January of 2000, when an official company spokesman was quoted as saying that Sega would make no moves against modchip sale or distribution.  Gamers worldwide rejoiced at this news, while intellectual property rights advocates were left scratching their heads.  Why would Sega make such a move?  Sony had fought a running legal and technological battle against PlayStation modchips, decrying their ability to allow gamers to expericence import titles and permitting the use of bootleg CD-R copies of PlayStation releases on modchip-equipped consoles.  Modchips stood in the way of maximizing profit, or so the Sony stance had it.  Sega took a more practical approach to the issue, holding that their custom GD-ROM format would help defer the blatant software piracy, especially of imports, that the PlayStation market was suffering.  "There are only a few plants worldwide that can produced Dreamcast software, so we are not worried about piracy," stated the spokesman.  "As far as I know, we have no intention of combating the mods or import software."  The unnamed corporate spokesman could have qualified for the old Indian statement, "White man speak with forked tongue."  Sega was quietly incorporating new code into its newer Dreamcast consoles games to defeat this and subsequent modchips.  The sudden appearance of Dreamcast consoles with a modchip-proof BIOS in February caused a sudden and noticeable demand for older consoles in all markets.  This in turn created an artifical boost in console sales (and profits) that Sega's accountants no doubt enjoyed.
     Were Sega's actions underhanded?  Were they "going back to their old arrogance," as some put it, saying one thing and then doing another?  That depended on who you were.  If you were an honest gamer playing by Sega's rules, then the issue didn't affect you.  If you preferred to void your warranty and play games you were never intended to see, then you were undoubtedly upset.  "Pissed is more like it," said one anonymous gamer upon hearing the news.  Truth be told, it pretty much depended which side of the issue you favored.  With this, the "battle of the modchips" kicked off in earnest, with new modchips being developed just as fast as Sega could figure out a way to lock out the old ones in newer consoles.  It was going to prove to be an interesting issue in the Dreamcast gaming community for quite a while.  Sega had followed the trail Sony had blazed in marketing strategy, and was now treading once again down the path that its competitor had made over the PlayStation modchip controversy.  If anything, it proved that there was at least one segment of the market that thought the Sega Dreamcast a worthwhile product - worth enough to hack, that is.

The competition arrives

     So, how were things going with Sega's competition during the first quarter of 2000?  It depended on who you were.  If you were Sony, you were busy ramping up for its worldwide PlayStation 2 rollout and making sure everybody else in the industry stopped by to kiss the PS2 Fisherman's Ring.  If you weren't, well, you were pretty much treading water.
     Nintendo, who had now been playing second fiddle to Sony for over three years, was finally beginning to see its position erode.  Like everybody else, the wild success of the Dreamcast had caught it completely off-guard.  Its Donkey Kong 64 gambit, while successful in its own way, had failed to stop the Sega onslaught.  The only "killer title" apparently left in the N64 arsenal was the long-delayed Perfect Dark.  Its next-generation console, the Dolphin, was nowhere to be seen and would not be in any form until the following year.  Nintendo was in the worst possible position for any company trying to compete in the volatile videogame industry:  it was caught between changing technologies.  All it could do was watch as support for the dying N64 began to evaporate, starting with Acclaim's departure in March, followed by Fox Interactive's surprising bow-out (Die Hard 64) at the same time, and fret as once-loyal customers began to snap up Dreamcasts as fast as their pocketbooks would permit.  Nintendo could only pray that GameBoy Advance and its reputation for programming excellence would save them until Dolphin was ready for market.  It was now their turn to drink from the cup from which Sega had already tasted misery just a few short years before:  product obsolesence. Nintendo was determined that it would only be a small and short sip, albeit a potentially bitter one, but only time and aggressive marketing of its remaining N64 software lineup would tell.  To quote Daily Radar, "... it must be conceded that the N64 is now a well-supported last-generation console no longer in competition for the top spot."
     The on-again, off-again nature of Microsoft's seemingly top-secret XBox continued to attract attention as new data became available.  Most remained skeptical as the spec contiued to shift with each new advance in graphics and processing technology.  By the end of February, the original AMD Athlon 500 MHz/GeForce 256 rumored spec had been replaced by an AMD Athlon 1 GHz/Gigapixel design, with appropriate changes in memory and storage requirements.  Curiously, the only thing that remained constant was the operating system itself - Microsoft WindowsCE, of course.  The software giant apparently still intended to put its Dreamcast experience to use on its own box, but it wasn't above hedging its bets.  Microsoft still continued its support of Dreamcast, and WindowsCE had by now become the preferred working environment of most of its third-party developers - all of which worked in Microsoft's favor.  On the other hand, there was also the continuing U.S. v. Microsoft anti-trust case to consider, which was not going in Microsoft's favor.  Industry insiders were claiming that the lawsuit had seriously hampered XBox development, explaining why it was still little more than "a piece of paper" in the eyes of many within the videogame industry.  Others thought differently, and the Internet broadsheet The Register ran a series of stories claiming that Microsoft was going to unveil the XBox prototype at the 2000 E3 show in March.  Not coincidentally, this was around the same time that Sega was supposed to announce the long-rumored Dreamcast DVD-ROM and Sony was scheduled to launch the PlayStation 2 in Japan.  Trade publications all over the computer and videogame industry were already speculating that XBox could be a PS2-killer product.  Virgin's Paul Whipp even went on record as saying that X-Box "could blow the PlayStation 2 out of the water if Microsoft puts their whole weight behind the console."  That was a mighty big IF, considering that it was still pretty much vaporware to most folks at this point.  More important to Dreamcast owners was the still-strong rumor that Sega was playing a prominent role in XBox develompent, and that did not bode well for Dreamcast's long-term future.  Whether it was true or not remained to be seen.
     Another ghost from videogame projects past finally reared its ugly head, albeit this time in marketable form.  The long-delayed and oft-derided Project X found new life in the guise of VM Lab's NUON.  In this form, it was technology designed to enable suitably equipped DVD players to run NUON compatable videogames.  The debut of NUON at the 2000 Winter CES in Las Vegas was met with a great deal of skepticism and rightly so.  Practically all of the games displayed weren't any better than what the venerable PlayStation could offer, and the whole affair came off to most observers as smacking of Atari at its worst.  Only time would tell how Project X - er, um, NUON - would fare, but nobody was placing any bets on the outcome.
     So, how did the videogame market shape up by the end of Q1 2000?  Sony remained in the lead and was all but assured of maintaining it. Second-place Nintendo was faced with the very real possibility that it would be trading places with third-place Sega within a matter of months.  As for NUON and XBox, well, they were still vaporware for now.  While this was not part of the rosy picture that Sega had painted for its future back in 1998, nevertheless the prospect of being a strong second suited Sega just fine.  It certainly beat being a weak third.

     On 18 February 2000 Sony began taking preorders in Japan for PlayStation 2.  Over 100,000 consoles were sold in just under an hour before Sony's computerized ordering service literally overloaded and melted down. It was on 4 March 2000, however, that the PlayStation 2 wave began to sweep across the videogame market in earnest.  Everything before this had been rampant hype and press build-up.  The PlayStation 2 made its official debut in Japan accompanied by an impressive list of launch titles almost three times longer than the one fielded by Sega back during the Japanese launch of the Dreamcast (27 November 1998).  Sony had produced 1 million consoles for the occasion, with some 500,000 sitting on store shelves ready to be lovingly purchased with the hard-earned yen of many a mind-numbed drone - er, um, eager customer.  Sony had built it, and now the customers came - by car, by bike, by foot, by bus, by train, or by any means they could before the first batch sold completely out.  First day sales were a resounding success by any measure, and the following weekend returns netted Sony the most successful videogame console launch in the history of the industry to date. By 6 March 2000, PlayStation 2 console sales officially broke 980,000 units.  A closer examination of the sales figures revealed that only about 600,000 units had cleared retail shelves (all that Sony could kick out the door), and the remaining 380,000 representing online sales that did not actually ship until two weeks later.  That little technicality did not stop the Sony hype machine from bragging on initial launch sales.
     PS2 purchases had effectively double the booming DVD market in Japan practically overnight; but without warning, a funny thing happened on the way to Sony DVD heaven.  Angry owners of brand, spankin' new PS2s began to complain about their newly acquired purchases.  Soon, scattered reports of DVD failures which were at first attributed to "wild-eyed otaku" snowballed into a nationwide demand for action across Japan.  Nobody seemed to agree on the exact cause of the problem, but a problem definitely existed.  Before long, Sony had to "save face" and recall every single memory card that it had issued for retail sale.  By the end of the month, they were taking back PS2 consoles as well.  It was not an auspicious beginning for what was supposed to be the videogame industry's new benchmark console, especially after news of the PS2's "DVD hack" became known.  The whole PS2 debacle threatened to push the scheduled U.S. launch all the way back to late November of 2000, and that did not sit well with eager American vidoegame fans.  Nevertheless, the Sony hype machine rolled on.
     By 14 March 2000 Sony had sold over 1 million PlayStation 2 consoles in Japan.  By 23 March, American preorders for Sony's PlayStation 2 had become so great that Sony began asking its vendors to stop accepting them.  According to a Fairfield Research survey of 200 nationwide retailers, some 53% report that PS2 preorders were exceeding records set by the Dreamcast the previous year.  In response to this news, Sega president Shoichiro Irimajiri publically conceded that the PlayStation 2 was selling exceptionally well, "due to its dual use as a DVD player," but argued that it offered few new benefits for its buyers.  Sega's response?  Well-placed anonymous sources were soon reporting on a virtual online software blitz being planned by Sega prior to the U.S. PlayStation 2 launch in the fall.  Among the titles dropped for release as part of Dreamcast's third wave of software, all with full online gaming modes, were Quake 3: Arena, Half-Life, NBA 2K1, and NFL 2K1.  When asked about these and other related rumors, Sega of America's Peter Moore responded appropriately. "If they [Sony] think we're just going to curl up into the fetal position and die, they're in for a rude awakening."  It should be noted by as of this date, Dreamcast was doing very well in North America with over 1.9 million consoles having cleared store shelves since 9.9.99 - easily exceeding Bernie Stolar's original prediction of 1.5 million units by March 2000.
     By the end of March 2000, though, Sony was sitting in the catbird seat insofar as the video game industry was concerned.  The PlayStation 2 was out, and aside from some "minor glitches" was selling like gangbusters.  Sony had shipped some 1.4 million of the new 128-bit "Dreamcast killers" to Japanese retailers, of which 1.25 million had actually cleared store shelves.  Corporate pitchment eagerly shared the company's ambitious goals of selling at least 3 million PS2 consoles in America, another 3 million in Europe, and increased Japanese sales of 4 million by the end of 2001.  Sony's year-end financial statement told another story.  It reported a fiscal year-end profit of ¥122 billion (US$1.14 billion), down from the previous year's profit of ¥179 billion (US$1.68 billion).  The drop was widely attributed to three reasons:  a strengthening yen against the American dollar, continued sales and promotion of the older Playstation in the Asian markets, and (note this) the high cost of hyping the PlayStation 2 launch in Japan.  That last burden was only expected to increase all the more as the impending U.S. launch drew near, drawing down Sony's coffers even more.
     Sega was not without its own problems, however.  Newsweek's 6 March 2000 issue, featuring the PlayStation 2 on the cover, contained within its pages a ticking time bomb that threatened Dreamcast's future.  It was a report from Tecmo's Tomonobu Itagaki, whose eye-popping fighter Dead or Alive 2 was doing for early 2000 Dreamcast hype what Namco's Soul Calibur had done for the 1999 U.S. launch.  The report is by Newsweek science and technology journalist N'Gail Croal.  "But having maxed out the graphics capabilities of the Dreamcast, Itagaki is psyched for the increased realism offered by PlayStation 2.  'I can create a more emotional world with more details and facial expressions.  The physics will be more accurate.  I'll be able to do smoke, fire, and water.  With current technology, the thickness of the fog is even throughout.  With PlayStation 2, one par can be thin and another thick.'  PlayStation 2, the ultimate keepin'-it-real machine, seems like it will satisfy these relentlessly inventive designers - until the NEXT paradigm-shifting polygon powerhouse comes along.  PlayStation 3, anyone?"  This statement was the last thing that Sega fans wanted to hear, even though it only reflect the facts through a developer's eyes.
     Like it or not, Dreamcast hardware was now two years old - three, if you count the development phase.  It had been conceived in the era of Voodoo2 and the heydey of RivaTNT2, back when 3 million polygons per second seemed to offer the world to a game designer.  Dreamcast was still impressive, given a sound gaming concept and talented programmers, but PlayStation 2 offered so much more.  PS2 was no longer vaporware.  It was here, now, despite the early bugs, throwing over six times as many polygons around the screen per second as a stock Dreamcast running full tilt and that without even breaking a sweat.  Developers now had the same choice before them that had effectively doomed the 32X back in early 1995.  They could either develop for the inferior platform now or start learning how to develop for a superior platform and rake in the profits later.  It was the same choice that had plagued Dreamcast third-party support from the beginning, but now more than ever thanks to Itagaki's comments.  Industry watchers were now starting to pay close attention to the Dreamcast's future release schedule.  Everybody who was anybody now agreed with the picture that Sony had painted for them - Dreamcast was the "interim system," the man working the crowd free of charge as mentioned before.  It was going to be interesting to see just how long its services would be required before the real show started.

A strange courtship

     One of the most interesting events to watch during March 2000 was the under-the-table offer by Microsoft to buy out Sega of America.  The reason was pretty obvious.  Microsoft wanted Sega's expertise and technical ability to buck up its own XBox project.  Speculators were even surmising that such a move would, in effect, turn XBox into "Dreamcast 2," since Sega probably didn't have enough money left to release a successor console.  According to several independent reports reports, promising initial talks between Sega and Microsoft quickly broke down over two key issues:  Dreamcast back-compatability and the Windows operating system.  Sega wanted XBox to be back-compatible with Dreamcast if it was to have any say in XBox hardware development.  This Microsoft refused to permit, and Sega reportedly balked at the high cost of making new Dreamcast titles compatible with the evolving XBox standard.  Also, Sega did not want to have to be constrained to Microsoft's requirement that all videogame console development be done under the bloatware environment of Windows.  Even WindowsCE was rather hefty for its claimed compactness, and that was the prime reason why Sega preferred to stick to its own proprietary APIs insofar as Dreamcast development was concerned.  The whole affair began and ended in a matter of days, but it market an interesting juncture in the unusual relationship between the world's best known arcade videogame manufacturer and the world's largest software company.  The move reportedly brought a temporary halt to Microsoft's XBox plans, but at the same time it left Sega free and clear on the 128-bit market for a little while longer.  Sega was quite willing to work with Microsoft and would do so again, but in this case the asking price was just too high.  In retrospect, the failure of the deal may have had something to do with the pulling of the planned ports of several popular PC entertainment titles by Microsoft on the Dreamcast, but Sega didn't mind the loss.  It now had more than enough Dreamcast titles released or in the development pipeline to make up for their absence, anyway.
     On 10 March 2000, Microsoft's Bill Gates officially unveiled the XBox.  "Building on our strengths as a software company," Gates said during the official press briefing, "Microsoft has developed XBox which will offer game developers a powerful platform and game enthusiasts an incredible experience. We want XBox to be the platform of choice for the best and most creative game developers in the world."  XBox was a DirectX/PC based videogame console running on an Intel Pentium III 733 MHz CPU, based on an nVidia G-Force derived graphics chipset.  It had three times the horsepower of Sony's PlayStation 2; in fact, it was far and away the most powerful entry into the 128/256-bit nexgen wave, outclassing all other consoles in every category.  XBox was slated to hit the videogame market in the fall of 2001 and had the support of practically every major Western third-party software vendor and a fair number of prominent Japanese ones.  Microsoft announced a US$250 million ad campaign designed to promte its impending X-Box videogame console - a figure that made every other console vendor blanch in shock.  SegaWeb's Craig Hansen was quick to quip, "Bill Gates is cursing both heaven and hell that he has no one like Yu Suzuki in XBox's corner," due to the fact that it did not appear that all that many quality software titles would be available for the new console's launch; however, a few days later, however, MCV reported that merger talks between Sega and Microsoft have not broken off as previously reported, but were quietly continuing "along different lines."  As the weeks and months rolled on and XBox news continued to build steam, rumors begin to surface that Sega and Microsoft were close to a mutual agreement regarding their respective consoles.  Sega was rumored to have begun software development for XBox, and in exchange Microsoft was going to include some form of Dreamcast back-compatability with its new überconsole.
     Two months later, on 25 May 2000, Sega's Isao Okawa set the record straight.  Microsoft was not playing a major role in Sega's Dreamcast plans, including online gameplay, and never would.  In response to questions, he also confirmed that Sega was asked to help Microsoft develop XBox.  The deal fell through due to "mutual disagreements."  Concerning the future of Sega and Microsoft's relationship regarding the Dreamcast, Okawa stated that "... Sega will not enlist the help of Microsoft.  We're done with them."  Many industry insiders promptly comment that Microsoft more or less used Sega and the Dreamcast as a proving ground for certain early XBox ideas and that Sega did not like this fact once the intrigue was discovered; however, Sega seemed to have realized the potential profits of software development for Microsoft's new console and decided to swallow its pride.  In the light of what was to come for Dreamcast, it seems to have been a prudent move.

The birth of SegaNet

     In other news, Sega's plans for network gaming continued firmly on course.  Over half a million Japanese gamers had registered on Dricas by January 2000, representing some 30% of all Dreamcast buyers in the country. In the United States, Sega's Neil Robison painted a rosy picture for EGM's Crispin Boyer about was was coming in the next few months.  "Picture a first-person shooter like Rainbow Six that has your team of troopers playing split-screen and hunting four terrorists on another console across the Internet," Boyer beamed.  "Coordinating attacks would be easy, since team members are all in the same room.  Of course, such a game would cram too much data down the Dreamcast's 56K pipe, so don't expect this novelty until Sega cozies up to broad bandwidth."  Public response was generally favorable to this news, although there were growing complaints from eager gamers that Sega wasn't moving fast enough in its Dreamcast Network launch.
     Speaking of broadband, Robinson also shared some new bits of info regarding Sega's plans on the subject.  "Robison also told me," Boyer noted, "not to be shocked if the Dreamcast's Ethernet adapter - set for release in the second quarter - will do more than let you link up a cable modem; it'll also allow you to hook Dreamcasts together at home.  So I figure that, as long as games support this feature, you'll be able to build your own local area network and play with a group of Dreamcast-owning pals, all in the same room.  Sega will thus introduce the previously PC-only concept of LAN parties to console gamers."  Later tha year at the Game Developers Conference in San Jose, CA, Sega's Charles Bellfield announced that the Dreamcast Ethernet adapter would hit North America by the fourth quarter of 2000, giving the console broadband capability via third-party cable modems long before anything of the kind would be availble for PlayStation 2.
     Several more Dreamcast hardware announcements were of particular note to those awaiting full network gameplay.  A number of reports surfaced in the Japanese trades that Sega of Japan had a PHS celluar phone modem under development.  Their apparent intention was to allow Japanese Dreamcast owners to network via iMode services on the PHS network from anywhere in the country.  Along the same vein, Nikkei Net reported that Sega of Japan was already testing alpha hardware of Dreamcast satellite tuners.  The commercial version was reported to have an asking price of ¥20,000 (about US$200).  These would allow networking via two-way K-band (DirectTV, Dish Network, et. al.) signals even during concurrent broadcasts.  It wasn't all that different from the DirectTV Internet service that Hughes had pioneered in the U.S., and Sega's experience with the Sega Channel back in the late 1990s made it seem a perfectly reasonable proposition.  Later on 22 February 2000, Sega of Japan officially announced a next-generation VMU that will not only have expanded memory but also be able to function as a portable MP3 audio player into which audio files could be downloaded.  Headphones were to be required for playback and no official release date was announced.  At the same time, it announced that the next update of the Dream Passport browser software would include the anticpated DreamLibrary MegaDrive (Genesis) and PC Engine (Turbo GraF/X 16) videogame emulation software.
     In the meantime, game developers continued to track Sega's online gaming plans with considerable interest.  Surreal's Alan Patmore, in an 02/2000 interview with NextGen magazine, probably summed up the feelings of most developers in this regard.  "I think it's the start of something that's going to be bit.  Actually, I think it's going to be a very niche-y thing ... [but] it will [happen] sooner than we think, because broadband has been making such inroads, such quiet inroads in America."  He was of course referring to the sudden and explosive rise in Internet access by the average American home and the narrow yet extremely dedicated market for Internet gaming.  It had been Sega's plan all along to tap into this niche market with the first videogame console sufficiently powerful enough to do it, and the developers were impressed.  The subsequent release of Sonic Team's Chu-Chu Rocket, America's first online Dreamcast videogame, went a long way towards publically confirming Sega's continued commitment to online gaming - no matter how "niche-y" it might be.
     By 17 February 2000 Sega of Japan was reporting that it has sold over 2 million Dreamcast consoles to date and that over 1 million Dreamcast users were actively using Dricas, the Japanese version of the Dreamcast Network.  Across the big pond, Sega of America reports that "over 300,000" U.S. console owners were using them to access the Internet and Sega of Europe reports that "over 200,000" European console owners were doing likewise.  Even so, Sega' Shoichiro Irimajiri took a swipe at the current state of the Internet at the Milla 2000 trade show in Cannes, France.  "The Internet is not fast enough for the interactive content designed to take advantage of it.  The Internet is not good enough."  So what did he propose as an alternative?  Irimajiri went on to outline a plan beyond broadband cable that would deliver gigabit-level speed and beyond, not mere megabit speed.  The network would be based on fiber-optic technology and Sega hoped to lead the way.  "We are determined to become the first company to tackle this new technology," Irimajiri noted, "and seize the 21st century with a vengeance"  While at the show, he also took the opportunity to demonstrate other up-and-coming third generation Dreamcast titles such as Ecco the Dolphin and Tomb Raider: The Last Revelation.  A couple of weeks later on 1 March 2000, Sega of America made U.S. videogame history by releasing Yuji Naka's Chu Chu Rocket.  It was the first fully networked (and Internet capable) console videogame in the history of the North American market, although it (and similar fare) had already been available in Japan for some time.  The release of Chu Chu Rocket completed the fourth phase of Sega of America's online gaming strategy.  Now all that was needed was the network itself.

     In April of 2000 Sega made an announcement that shocked the videogame industry.  You would soon be able to get a Dreamcast FOR FREE!  That surprise announcement put Sega light-years ahead of Sony, its closest rival, and all other comers in the potentially lucrative Internet market for videogame consoles.  In order to understand the impact that this had and its significance, though, we need to step back in time a bit and put the news in its proper perspective.
     Ever since the U.S. launch back on 9.9.99, a number of gamers had opted not to buy the Dreamcast.  When asked why, one of the two most common answers was, "We're waiting for the price to drop.  We figure Sega will cut the cost to US$150 or so after Christmas, so we're going to wait."  Not surprisingly, the same thing was happening over in Europe, where many a cost-conscious gamer decided to hold onto their quid for a few months, hoping for a price drop.  Guess what?  It didn't happen, and that made many of this crowd quite upset.  The grumblings grew louder as the new year advanced, with many adding a postscript that if they had to wait too long, then they'd be just as well off waiting for PlayStation 2 to arrive.  So, the surprising word about "free Dreamcast" from Sega naturally got everybody's attention.  The catch?  You had to sign on to Sega's new dedicated online gaming service, Sega.com, for a period of no less than two years in order to qualify.  Mind you, this is the same online service that had been previously known as the Dreamcast Network and would later be known by the much simpler term SegaNet.  The particulars were as follows.  Current Dreamcast owners who subscribed to Sega.com would receive a US$200 rebate check and a free DC keyboard.  New Dreamcast buyers would receive a US$200 refund voucher (in effect refunding the full purchase price of their newly acquired console) and a free keyboard.  Current personal computer owners who subscribed to Sega.com would receive a free Dreamcast console with keyboard.  Regardless of how they got there, all new Sega.com subscribers were required to maintain their subscriptions for a minimum of two years or else they would have to return Sega's US$200 or their free Dreamcast, whichever they had received as part of the initial offer.
     The actual idea for SegaNet was the brainchild of Brad Huang, longtime Sega consultant.  Back on 8 April 1999, he had paid a visit to Sega of Japan president Isao Okawa.  During the visit, he had broached the idea of "giving away free hardware in exchange for signing up with an online service" - in this case, one that Sega would own lock, stock, and barrel.  The "free hardware" in question would be free Dreamcast consoles, necessary for accessing the new online service.  Huang foresaw the videogame market making a tremendous move onto the Internet within a few short years.  Thanks to increasingly rapid advances in computer technology, the capability for online gaming would soon equal, and perhaps surpass, the experience offered by the traditional standalone console.  Huang wanted Sega to be there first, but Okawa was understandably lukewarm to the idea.  It wasn't that he didn't like the idea, but it was something that Sega was ill equipped to afford.  It took some considerable doing on Huang's part to convince a recalcitrant Okawa and its advisors before they eventually went along with it, and Sega corporate eventually ponied up some US$100 million for the Sega.com venture.
     It was a tempting proposition for gamers, to be sure.  Sega.com's US$22 monthly user fee was a bit pricey, yes, but you got all the hardware you needed to access the Internet for free - including the Dreamcast keyboard.  The two-year requirement irked some, but Sega executives were no dummies. In order to make SegaNet work and turn a profit, they would have to have committed subscribers; otherwise the fledgling startup would sink under its own debt-laden weight.  Whether or not it would be perceived as either the "carrot-and-stick" or the "bait-and-switch" approach remained to be seen.  It didn't seem to matter to Sega of America executives, though.  They were so confident that SegaNet would prove successful that they promptly announced plans to sell an additional four million Dreamcasts to North America "by this time next year."  Their confidence was not unfounded.  As a direct result of the Sega.com announcement, Sega was now the number three most prominent videogame company on the Internet, easily passing Nintendo and pulling within striking distance of Sony.  Curiously enough, the number one most prominent Internet presence was Microsoft, and they showed no signs of going anywhere anytime soon.
     While Sega bathed in its own press releases, though, and both the Internet and the trade zines speculated about the implications of Sega.com, the retail community largely ignored the affair.  There was little mention of it among the major toy vendors, such as Toys 'R' Us and Kaybee.  Visit such specialized electronics chains as Electronics Boutique, Best Buy, and CompUSA, and one would be hard put to find any news, press, or promos about the offer.  As for the major department stores, such as Target and Wal-Mart, the announcement was ignored altogether.  The implications of this reception were not lost on those who were paying attention to Sega's newfound generosity.  To put it simply, Sega's "free Dreamcast" offer was being ignored.  Why?  Two words - "PlayStation 2."  The launch was a lot closer now, and the prospect of receiving a free Dreamcast didn't appeal to many potential customers who had large pre-existing PlayStation game libraries.  You see, there was that little matter of buying the software, with which Sega was providing little help.  The new stuff, the Internet capable stuff, would cost more on the whole than the first and second generation stuff, which by now was being discounted to something more affordable.  Also, within days of the Sega.com announcement, Sony moved to accellerate its own online plans.  They announced that a modem would be a standard feature of the U.S. PS2 upon launch, and that their own online gaming network, PlayNet, would already be operational in Japan by the time the U.S. launch rolled around.  The keyboard?  No problem.  Since PS2 had USB ports, you could use any USB keyboard with it.  Also of note, the PlayStation 2 would supposedly come equipped with both DVD an 8 GB hard drive as standard features, will all of the storage features and online flexibility that both implied.  Dreamcast did not and would never have such features, according to Sega's own accounts.
     Surely the implications of Sony's swift move and the tepid reception given Sega.com at the retail level was not lost on the folks at Sega corporate headquarters.  They had their work cut out for them as the Sony juggernaught continued to lumber towards them, swallowing all of their hard work in its way.  Some way would have to be found to awaken more public support for Dreamcast before it fell beneath PlayStation 2's might. 

All that glitters is not gold

     As the year 2000 rolled on, it seemed that nothing could stop Sega's comeback.  The Japanese marking was ailing, yes, but not dead by a long shot.  Meanwhile, the Western markets had roared to life and Sega was well on its way to re-earning its reputation of old with the gaming public there.  In fact, Western sales were by now so strong that Sega executives were confidently predicting that they would sell 10 million Dreamcasts worldwide by the end of 2001.  Sega's own Tetsuya Mizuguichi went on the record predicting that the Dreamcast will have "at least three more good years" in the North American market.  Dreamcast games had strong representation in the official NPD Group software charts, with Dreamcast's second generation of games (most notably Capcom's Resident Evil - CODE: Veronica) leading the charge.  The software vendors who had backed Sega's comeback were also doing quite well.  For example, Capcom, the most notable Japanese third-party developer for Dreamcast, reported a 6.4% net profit increase for fiscal year 2000, due largely to selling some 730,000 copies of CODE: Veronica for Dreamcast worldwide.  In fact, it had gone on to become the #1 best-selling videogame in Japan and the #2 best-selling game in North America over the past quarter.  Even so, Capcom expected to take a hit in 2001 of some 34% on their bottom line due to, as they put it, "making the transition from PSX to PS2 support."  It was a move many third-party vendors were considering as the Sony tsunami continued to swell.  Why?  Surreal's Alan Patmore spoke for all in an inteview with NextGen when he said, "... [Dreamcast] will stick around until PlayStation 2 really makes its mark.  I think it'll be the interim system.  It's pretty hot right now."  The truth of Patmore's observation was all too clear at the 2000 Spring Tokyo Game Show, where Sega stole the limelight once again thanks in part to public backlash against the PlayStation 2 and in part to the sheer wealth of current and coming attractions it had to offer for Dreamcast.  Among the most talked-about up-and-coming Dreamcast titles previewed at Sega's booth were the unconventional and very hip skating game Jet Set Radio, the long-anticipated multiplayer RPG Phantasy Star Online, the European-produced racing game Metropolis Street Racer, and Japan's own corresponding Shukoto Highway Battle 2 (aka Tokyo Xtreme Racing 2).  Sega had the public ear at the Tokyo Game Show, yet Sony had the developers' support.
     There were signs, though, for anybody who cared to seek for them that all was not quite as rosy with Sega's comeback as it seemed. The first sign that all was not well was that Sega consistently refused to drop the price of Dreamcast in all markets.  There was only one way for Sega to stop Sony, and it was best voiced by Relic's Alex Garden.  "[Sega] could really give PlayStation 2 a strong run for their money, but they'll need to whack the price down now, take a huge loss, ship a ton of units, and really establish themselves within the mass market and create a market for the long term."  Many Sega fans and casual consumers had hoped and prayed that they system would drop from US$200 to US$150 after the holidays, but Sega deliberately distanced itself from any such move.  Sega of Europe's J.F. Cecilion said that any such move on his watch would only come about "as part of Sega's long term market strategy."  Sega of America's Peter Moore was even more blunt, saying that a Dreamcast price drop would not happen "for a long time yet."  Moore stated the reasoning behind Sega's move in a 15 March 2000 interview as reported by MCV.

Whether the gamer understands it or not, [the business] is not about providing great gaming entertainment.  It's about putting a set top box in there as a Trojan horse.  [Why?]  Because gaming entertainment [for Sony and Microsoft] is a means to a different end, and that's controlling the living room .... It's not about spending more, it's about spending clever.

Software sales on DC suck ....  I'm not going to torpedo my company [by supporting Dreamcast] to satisfy a few people who wish Sega wasn't in real trouble. [T]he simple fact that Seaman, Crazy Taxi, House of the Dead 2, Zombie Revenge, Space Channel 5 and others are all coming to PS2 from various publishers next year says that despite [Sega of America]'s best efforts, the writing's on the wall for Sega, and [Sega of Japan] has decreed that future to be multiplatform, with or without Dreamcast.  It's actually a good thing, because now Sega will survive, doing what they do best - software.

You can't expect million-sellers on a two-million installed [console] base ....  At any rate, our business has never called out for a million-seller.  It will next year, but that's a function of installed base.  Quite frankly, to drive through a million-unit seller in the first 12-18 months of a console is very difficult to do.

The Dreamcast deadline

     On 24 April 2000 Peter Moore was promoted to president of Sega of America, replacing Toshiro Kezuka in the job.  Also promoted were longtime Sega executives Shinobu Toyoda and Neal Robinson.  Moore's successful management of the Dreamcast launch in North America was seen by many as the chief reason behind the move and Sega corporate was extremely confident in Moore's abilities.  "As Sega gears up for a critical year, we know the company will be in good hands with Peter Moore," said Sega corporate president Shoichiro Irimajiri.  "After we witnessed the incredible launch he orchestrated [in the U.S.] and experienced his impeccable leadership skills first hand, we knew there was no better candidate for the job. Peter has the strength, depth and experience to oversee all aspects of our multi-layered company, and will be able to continue giving Sega the strategic direction it needs as the company focuses on online console gaming."  Sega's third-party licensees were quick to support the change in leadership."Peter has what it takes to bring Sega back to its true birthright as a leading gaming company," commented Bill Gardner, Capcom USA. "From day one, we were impressed with his understanding of our business, partnership orientation and his commitment to continually pushing the envelope in redefining this industry."  Moore understood his position well; he would be in charge in North America during the most critical period of Sega's re-emergence.  It was not a task to be taken lightly, but there was no one better qualified than Moore to handle the job.  With his new promotion firmly in hand, Moore promptly swung into action, working to realize his unspoken goal of making the year 2000 into "the year of the Dreamcast."  It was going to take every talent and resource at his disposal to overcome the Sony hype machine.  Unconfirmed reports from Japan claimed that Sony had sole over 2 million PlayStation 2s by the first week of May, pushing an average of between 50,000 to 100,000 units per  week.  It was a formidable challenge; but then again, Moore was a formidable man.

     11 May 2000 marked the beginning of the yearly Electronics Entertainment Expo (E3).  To no one's surprise, Sega and the Dreamcast dominate the entire console portion of E3 2000 becasue Moore and his staff at Sega of America made every effort to blitz the show with all things Sega.  A full-blown demonstration of SegaNet, the company's online service (as it was now known) was given in all its glory, and it was revealed that the service was almost ready to go and would be available (along with the broadband adapter) sooner that anyone might be expecting.  Sega of America announced its initial software lineup for games that would support online plan, comprising some 16 titles: Alien Front Online, Black & White, Bomberman DC, Chu Chu Rocket, KISS Psycho Circus, Magic: The Gathering,  NBA 2K1, NFL 2K1, PBA Tour Bowling, POD 2: Speedzone, Sierra Sports, Phantasy Star Online, Quake 3: Arena, Railroad Tycoon 2, 4x4 Evolution, and Worms: Armageddon.  A full-blown preview of the English-language version of Shenmue was given, with the game itself set for release by the end of the year.  Sega confirmed the Dream Mouse, a pointing peripheral for the console long desired by its users - especially hardcore Quake 3 addicts who were itching to get their hands on the Dreamcast port of Quake 3: Arena.  Present for inspection (but not use) were mock-ups of the Dreamcast MP3-capable VMU and the rumored DVD-capable Dreamcast console.  Vivarium's Yoot Saito, creator of Project Seaman, revealed tentative plans for a sequel of sorts that would build on the original game.  Finally, to the plesant surprise of everybody concerned and after months of constant pleas (and outright whining in some cases), Sega of America announced that it was going to drop the retail price of the Dreamcast to US$150 in June.  The whole show might have gone Sega's way had it not been for two things.  First, an anonymouse EA spokesman bluntly stated the company's reasons for not supporting Dreamcast:  "We believe that the Dreamcast will be a non-factor in the next generation console race."  Second was Sony's announcement regarding their North American market intentions for PlayStation 2.  It announced a 26 October 2000 U.S. launch date for the console with a suggested retail price of US$299.  Sony planned to have over 50 titles onhand and ready to market by that date.

     The end of spring brought about another major personnel change at Sega, and one that shocked almost everybody who heard about it.  On 23 May 2000 Sega corporate president Shoichiro Irimajiri resigned his position and stepped down to the role of vice-chairman, taking the blame for Sega's third straight yearly loss in a row.  Taking over direct control of Sega's worldwide affairs was none other than Sega chairman Isao Okawa himself.  Revised internal financial forecasts now predicted that Sega took a corporate year-end loss of some ¥44.9 billion (US$411.5 million) for fiscal year 1999.  These projections also noted that Sega of Japan had only sold about 600,000 Dreamcast consoles in the period 09/1999 to 03/2000 in comparison to an estmated 1.1 million initially reported.  In a brief discussion with the press, Okawa reaffirmed his December 1999 statement that Dreamcast woud be Sega's last home videogame console, and that the  official report on the company's full-year earnings for 1999 was scheduled to be released on 26 May 2000.  It should be noted that Sega's losses were actually down a bit from previous years; however, the revised figures also tookinto account the highly successful American and European Dreamcast launches.  In comparison to the near-million PS2 consoles that Sony sold in Japan at its launch, Sega had only sold 5.8 million Dreamcasts worldwide at this point.  The news sent Sega stock reeling on the Tokyo Stock Exchange.  It was already low by any measure, but Irimajiri's resignation caused Sega stock to drop by 41% of its value as of November 1999.  In a subsequent press briefing, Sega spokesmen expanded on the company's intentions to break up its software R&D division into nine separate entities and its arcade division into five independent regional companies, and the move was praised by Sega investors as a wise one.  Speculation in the Japanese videogame industry was strong that Sega was about to undertake another massive companywide shakeup.  This time, though, it would be away from the console videogame market and towards the promise of the Internet.  Over in the west, rumor had it that that Microsoft or even Sony was now seriously considering buying the financially ailing Sega.  The Microsoft buyout rumor was given considerable credence due to their past moves in that regard, buth both eventually proved untrue.  Sega was still lurching about the landscape on its own, and while its reputation with gamers was rising, its ship of state continued to sink.
     Sega released its yearly financial statement on 26 May 2000.  It reported a actual year-end net loss of ¥42.9 billion (US$398 million) for fiscal year 1999, about the same as for 1998. Sega's inept Japanese market performance was, as expected, cited as the chief culprit behind the loss.  Sega also reported a net 27% increase in product sales worldwide, primarily due to the moderately successful European and wildly successful American Dreamcast launches, but it had not been enough to offset losses from the sale of Dreamcast hardware.  Sega's financial statement projected a net profit for fiscal year 2000 of some ¥1.5 billion, due largely to division reorganization and expansive cost-cutting measures.  It also predicted, rather unconvincingly, that Dreamcast would remain competitive with PlayStation 2 during that time.  Also buried in Sega's annual financial report were figures for worldwide Dreamcast console sales.  Sega had sold to date some 5.8 million Dreamcasts, of which 4.65 million were sold during 1999 and were for the most part sold overseas.  That figure was over 300,000 consoles below target, representing the system's dismal performance in Japan.  The statement noted with pride the performance of the Dreamcast in North America, having sold some 2.5 million consoles in that market, and also predicted that Sega would sell another 2.5 million units there by March 2001 for a grand total of 5 million units installed.  That projection was down from the 6 million originally predicted for March 2001, reflecting market difficulties and the impact of Sony hype surrounding the oncoming U.S. PlayStation 2 launch.  Also of note in Sega's financial statement is that none of its first-class Japanese Dreamcast titles had met their projected sales expectations - none of them, including such well-known names as Shenmue, Space Channel 5, and Virtua Striker 2.  Stories continued to abound concering Sega's in-hous development efforts regarding Dreamcast spin-offs, accessories, and successor consoles, but the clouds of doubt regarding the console's future were now firmly planted on the horizon.
     1 June 2000 was the most critical date in the projected market life cyle of the Dreamcast.  According to a report authored by the Japanese branch of Salomon Smith Barney originally issued on 5 January 2000, this was Dreamcast's "make or break" date.  By 1 June 2000, Sega should have recouped all of its initial US$600 million investment in the system, having sold all 2 million units of its initial production run for North America and now selling approximately 1 million consoles per month in all major markets from this point forward.  In plain language, this meant that Sega should have started turning a profit on Dreamcast after 1 June 2000.  Did that happen?  No.  Was Sega even close?  No.  Sega should have had about a 20% market share by this point; instead, it was wallowing along at 14% with no sign of gaining any significant ground any time soon.  There was not a single Dreamcast title in the top ten titles on anybody's software chart worldwide save in the United Kingdom, where for some perverse reason the Dreamcast port of Who Wants To Be A Millionaire? was selling exceptionally strong.  People liked the console and they liked the games, but most preferred to stick with what they had and save their money for the consoles to come after Dreamcast.
     There was no choice for Sega.  It was losing money, but it couldn't wait and continue to maintain the high price of Dreamcast any longer.  In both Europe and the U.S., Sega made preparations to cut the price of the Dreamcast by 25%.  Isao Okawa and everyone else at Sega had hoped that there was an outside chance of the company making some kind of profit off of its Dreamcast gamble.  It never had, and now it never would.