The Dreamcast was the first 128-bit console on the market and came from Sega. Stories of this console started appearing on several Internet sites on March 12th 1997. It was originally rumoured to be a 64-bit upgrade for the Sega Saturn, code-named Eclipse, but by March 31st, this story had changed and it was now believed that Sega was planning a completely new, separate console.
By June 1997 it was known that Sega had two different design specs for consideration to become the new console, one code-named Black Belt, and the other code-named Dural. They were almost identical apart from processors (Black Belt having an IBM/Motorola PowerPC 603e CPU with 3Dfx Voodoo2 graphics chipset and Dural having a Hitachi SH-4 CPU with NEC/Videologic PowerVR2 graphics chipset) and matched well with the specs of Sega's newest arcade board code-named NAOMI.
It soon came time to decide on which one was to be used as the final console. Sega chairman, Isao Okawa, ordered for both designs to be made so they could better evaluate the two. Sega of America went with the Black Belt design, but Sega of Japan went with the Dural design. They finally decided on the Dural design (renamed Katana and given 16MB of Video RAM rather than 8MB, allowing better graphics rendering capabilities). The console boasted that it was easy to produce games for and so it quickly gained a lot of third party support.
Sega worked with many other companies to produce this machine including Microsoft, Hitachi, NEC, Video Logic and Yamaha. The console is Windows CE compatible and can run the Internet with its built-in 56K modem allowing you to play games over the Internet or browse the net using the optional keyboard/mouse. In Australia, this Internet access was provided exclusively through Telstra Big Pond. The Dreamcast can also run emulators.
The controller is excellent with its two trigger buttons and compatibility with Sega VMU. No DVD drive was included as this would have been far too expensive to produce. Sega would later be criticised for this. Instead, they used a CD-ROM drive which runs at 12x. The machine can handle 3 million polygons per second.
The console was announced to the public as the Sega Katana on September 7th 1997 but this name had changed to Dreamcast by the time they were ready to release it a year later. When it came time to release the Dreamcast, many delays prevented it from running on schedule. Final touches had to be made on the console and first-release games. There were many pre-orders taken leading up to its release in Japan, which would seem like a good thing for Sega, but they could not fill these orders (both because they could not make that many consoles in such a short time and also because of a lack of parts) and so they asked for orders to be halted.
The release date was re-scheduled a number of times because of these problems, but the Dreamcast was finally released on November 25th 1998 in Japan. All 150 000 consoles that Sega had managed to produce by this time were sold out on the first day. They remained sold out until the next shipment arrived in mid December.
By 16th July 1999, the Dreamcast was outselling the Nintendo 64 by a 3 to 1 ratio. Meanwhile in America, advertising for the Dreamcast was taking place and by August 1999 it had broken the advanced sales record of the PlayStation with 200 000 pre-orders placed. The official North American release was September 9th 1999 at a cost of US$199.99.
Unfortunately, a number of problems occurred, which may have made a small contribution to the consoles failure later down the track because of angry consumers. Some Japanese games were shipped to USA and, of course, didn't work on the US consoles. Ready 2 Rumble was released with the wrong drivers, also making the game not work. The lack of a Sega-made light gun, some people criticising the controllers and lack of VMUs available also didn't help. But other than these problems, the US release was a big success for Sega.
The European release (14th October 1999) was also quite successful, but the Australian/New Zealand release (30th November 1999) was a failure with shortage of consoles and games. Because of this, no further interest was taken in the console and stores quickly stopped supporting the Dreamcast in Australia as it was just not worth it. Only a few shops that specialised in selling games continued to sell Dreamcasts and games.
By October 1999, Sega of America announced that it had sold 518 000 consoles in 1 month in the US. By the beginning of November, this had increased to 750 000 and by the end of the year, 1 million had been sold. At that rate, Sega expected to break 2 million by March 2000.
Sega had promised that the Dreamcast would be both expandable and upgradeable. By the end of the year, they had announcements of a DC Zip Drive and cable modem compatibility. Of course, the Internet access planned for the Dreamcast had not even begun yet because of various delays, and this is perhaps another contributing factor to the console's failure in the end.
The largest factor that contributed to the failure of the Dreamcast, however, was the announcement of the Sony PlayStation 2 (and later the Microsoft Xbox and Nintendo GameCube). Sony's console was superior to the Dreamcast in many ways (but the Dreamcast still had some things better than the Playstation 2) and Sony even dropped the price of the PlayStation 2 to compete with Sega. But there was no way Sega could drop the price of their console. To the public, it seemed that Sega was greedy, but if they dropped the price of the console, they would never meet the break-even point after losses from previous failures.
After delays, SegaNet finally began, allowing Dreamcast users to play games over the Internet. In January 2000, 30% of Japanese Dreamcast owners were using Dricas and by 17th February this had risen to almost 50%. In the US over 300 000 people were using DC's Internet and in Europe over 200 000. Then came the announcement of a free Dreamcast given to anyone who signed up for Dreamcast Internet for a minimum of 2 years. This was a deal Sony could not match and so this kept the Dreamcast going for a while.
But there was still the issue of price that made the Playstation 2 a more attractive offer. Even though the Dreamcast was still cheaper, people would prefer to pay a little more for the more promising-looking Playstation 2. Software sales for the Dreamcast were never good, which didn't help either. Sales of the Dreamcast dropped in late 2000 and things kept going downhill from there. Sega stopped production of the Dreamcast in February 2001 and then lowered the price, selling their consoles at a loss. After this, Sega decided to become a third-party producer of games for other consoles and not make any more consoles.