Look, I know this isn't very original and it's not the first time this comparison has been made, but stick with me here. I have been digging a lot into the history of the Dreamcast for some time now and what I keep finding is how similar some of Sega's moves are to Microsoft with Xbox. So I am going to be comparing the current situation and market strategy of the Xbox right now with the Dreamcast prior to it's discontinuation. Looking at both consoles whilst they're still on the market may help give some context to some of the moves Xbox have been making. As you may hopefully see, there are some similarities to be seen.
Market Share
Let's start with the most obvious when comparisons get thrown around; both are last in the gaming market. The situation both Xbox Series and Dreamcast found themselves in was bottom of the pack when it comes to sales and market share. The hardware of both devices ware undoubtedly excellent which led to initial sales being very strong for both. Dreamcast had a successful launch with things looking promising for Sega before slowing down drastically in the latter half of 2000 as the hype for the PlayStation 2 was hitting fever pitch. Customers decided to hold off for just a few more months before they could bag themselves Sony's new DVD capable machine.
Funnily enough Xbox Series consoles had a similar situation. Launching during the pandemic, the console had a very strong launch breaking multiple records for Xbox. Momentum and sales continued to grow in 2021 and sales were healthy into 2022. But as 2023 rolled round, something changed and consoles sales began to drop significantly. Why is that? Well, the PlayStation 5 finally managed to circumvent shortages and become more readily available. Initially the Xbox was the most easily available of the two, but as the PS5 started to hit market shelves in abundance, a clear decline in sales began which it was never able to recovered from.
It's known now that Microsoft has fully ditched Xbox exclusives, opting for multi-platform releases which have seen great success for Microsoft. Initially starting with the infamous 'just 4 games' from the Xbox Business Podcast to becoming 'no red lines'. The wholly trinity of Gears, Halo and Forza have now made their way onto PlayStation; truly killing the Xbox exclusive forever. Prior to this, it was just PC ports, now anything is fair game.
So how can we compare this to Dreamcast? Well, Sega much like Xbox, weren't afraid of putting their games on PC. Sega even had their own SEGA PC branding which saw simultaneous releases on the PC platform. We also saw Sega putting their games on handhelds, such as Sonic Pocket Adventure on Neo Geo Pocket - which was less controversial at the time. However, neither of these were prolific, but we do later know in hindsight that Sega always had plans to port their games over.
First off, Sega publicly commented in an IGN interview how they wanted to port Sega Saturn games to PS1 after the plans for GBA were scrapped. Internally, they had even reviewed porting Dreamcast titles. What's interesting about Sega's announcement of releasing games on PlayStation 2 is just how quickly they arrived following the announcement of the Dreamcast's discontinuation. In a March 2000 article, GameSpot reveals rumours about the full plan; from the number of games, to even Aklaim being the publisher. Whilst this came to fruition following Dreamcast's cancellation, these decisions look to be set in stone 9 months ahead of time. Sega were always planning on going third party, and much like Microsoft, they outright denied it at first.
That isn't to say leaving the console market was always Sega's plan. Pretty early on in the Dreamcast's life span, Sega's Irimajiri was making projections of market share and dedicated support numerous times with dates as far forward as 2003. But plans shifted, and it became increasingly clear this was Sega's last console, even Okawa stated so. However, this wasn't to say Sega were going to ditch Dreamcast and hardware all together. Comparatively, Xbox was the same way. Initially the console was poised to go head-to-head with the PlayStation, Phil being confident in early leaked emails in 2020 that they had the superior console. As the years went on, consoles sales have fallen off a cliff with availability coming into question across a number of countries. Despite both consoles for the respective timelines being in dire situations, there was a commitment of continued support - and more importantly - future hardware.
So how does this future hardware take place? Well starting with Xbox, we know it's going to take the shape of a Windows 11 machine with a heavily modified version of the OS with a built in Xbox app designed around controller inputs. We already see it with the Asus Rog Xbox Ally - a collaboration with Asus for a built in Xbox branded device for Xbox Play Anywhere titles. In the past few years, 'Xbox Certified' has been appearing on a lot more hardware peripherals. It's heavily rumoured that the next Xbox console will be a family and include other OEM versions certified by Xbox. The viability of this is more likely than ever. We have the Asus collaboration already and the next Xbox device all but confirmed as being a PC under the hood means OEM manufacturers can focus entirely on building certified hardware to run this version of Windows 11.
Sega at the time were in a similar boat. The next iteration of the Dreamcast console wouldn't be a traditional console - much like how the next Xbox isn't either. In late 2000 when Sega were in dire financial states, there were advertising a new direction for the Dreamcast. Promises of a new console were made, but it wouldn't be what you thought. Dreamcast would be licenced out to Pace, who would incorporate the console into their set top box device. Included would be a 60GB HDD which would be where games downloaded via their network service would be stored alongside purchasable DLC. Sega had their eyes on set top boxes very early on in the game, and was clear the console would live on via OEM partnerships primarily. Unfortunately, we will never know if this extended past just Pace as the deal fell ultimately fell through.
Both company's similarly see hardware as a means to growing their service as apposed to being the main goal. Initially both company's both aimed towards selling more consoles and reaping back profit via the traditional subsidised model. Both began to move away from this as things weren't panning out and diversified how they can operate. Xbox most notably became all about GamePass, driving users to subscribers into their ecosystem and locking them into a promising day 1 line up of titles and extracting profit with semi-frequent price increases. You can subscribe to GamePass on PC or mobile if you wish, and where it isn't available, their games are available on PlayStation to buy. The choice is up to you. But the console is here to stay, as noted by Phil in 2025 when he said ' I've said over and over that 'box' is in the name of our brand, I'll say in the position I'm in, I look at hardware as a critical part of what we do".
In early 1999, Okawa came out and said 'I will say that the future doesn't necessarily lie in the hardware business' before going on to say the future is 'e-services'. Later in August 2000 Okawa continued to advertise that Sega would continue down the path of services which at this stage, was becoming evidently more clear. Sega focused on getting people subscribed to Sega Net, which was such a priority for Sega that they even offered Dreamcast consoles if you opted into a 2 year contract for the service In 2001, Sega did showcase their Open Dice Cross-Play strategy, which would highlight how their e-amusement services would bridge the gap between the consoles, PC, arcade. These plans were drawn up too late in the game and after the demise of the Dreamcast. Much like the situation Xbox find themselves in, Sega still needed the console to initiate on these plans. Okawa admits as much in August 2000 after speaking about focusing on e-service: '(Sega) will always need to develop some form of console'.
When the Dreamcast launched something which people picked up on quite early was the lack of branding. Nowhere on the box did it say 'Sega' and instead focused on 'Dreamcast'. As the generation went on, the Dreamcast was going to be everywhere from Phones, Palm OS, DVD players and the main one taking the form of a set top box. This would be thanks to future development of Sega's huge focus on building a system on a chip of Dreamcast as quickly as possible before running out of cash. Most notably Sega wanted to strengthen their market on PC by having dedicated Dreamcast GPU's which would be backwards compatible utilising this SoC. Yuji Naka hinted a future when keyboards should have a label called 'game' which would run Dreamcast games immediately - somewhat reminiscent of how the Xbox's guide button on devices such as the Rog Ally.
Xbox is similarly going through a major shift as of recent. Unlike Sega, they
no longer have to develop exclusive hardware to achieve this goal and can do
this through software and streaming. We're seeing the Xbox environment being
available on mobile and even on select Samsung TV's in the form of GamePass.
Microsoft are changing. Microsoft have cleverly changed the context of what
'Xbox' in recent times. Before, when speaking about Xbox, it was always
specifically about their consoles. Now, thanks in part to their recent' This
is an Xbox' marketing campaign, it now refers to the brand - a brand which can
be accessed anywhere, console or no console.
Conclusion
So what can we gather from looking at all the above? We will have to see how this all pans out for Microsoft. Looking at Sega after bowing out of the console market, Sega's vision and primary focus of e-services never really panned out. In October 2000 Sega had 1.55 million online Dreamcast users, but they never found a way to migrate Sega Net off from the Dreamcast. As time went on, subscribers were drying up and servers began to shut down before being fully non-operational in late 2002 in US and 2007 in Japan.
It is a similar issue Microsoft face with Xbox. Yes, everything is dubbed an Xbox and GamePass can be played in more places than ever. But the reality is, the majority share of GamePass users are on console. It's clear Sega had the same plans: get a Dreamcast system on a chip developed, then Dreamcast will be on PC, it will be on phones, DVD players etc. The more places Sega can have their games, more people were going to subscribe to their services too. Much like Microsoft, they faced the same issue, majority of users who subscribed to the service were stuck on their console.
Luckily Microsoft has an easier job, they just need to get their software onto other devices as apposed to creating bespoke hardware to do the job. But the challenges remain the same. If Microsoft's next console performs even worse than before or plans fall through, can they succeed where Sega failed in getting users outside of their console ecosystems? Where this failed for Sega, they succeeded to some degree being third party, though they had to heavily streamline their output after dire sales.
So this is the situation Xbox are in if we were to compare this to the Dreamcast at the same point. Xbox need to grow their audience from the dwindling console userbase. If they don't, they face a situation where they're going to rely once again on consoles for their subscriptions - a console which they have been deprioritising heavily and will have no exclusives going forward. If they can't, then we may see them just focusing on being a third party publisher. But things are different this time, so let's see how this plays out...
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