Project dreamcast

8/9/2019 Project dreamcast

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Project Dreamcast

Executive Summary

Sega Enterprise is preparing for the launch of its Dreamcast home video game platform. Dream

casts graphics engine card, PowerVR2, which is supplied by NEC, would not be available in

requisite quantity to meet the full demand during the launch of Dreamcast. They have to choose

between either delaying the launch of Dreamcast or reduce the number of machines available

during the launch.

Sega had been into the business of arcade games for close to 32 years before it ventured into

home video segment. Segas home video business had drawn in significantly from the technical

design of arcades. Sega had ported software from its arcades onto the new home video platform.

In terms of their usage, there was a difference in the way these two platforms differed. Arcade

games were designed so that they had a judicious level of difficulty, such that they were neither

too easy to master nor too difficult that the user might stop paying money to play on arcades.

Home video games, could afford to be much tougher since that would help in retaining the

interest of the home video user.

Sega launched its Project Dreamcast with the twin objectives of delivering the best-in-class

gaming console experience and to get back at the No.-1 position in the home video game console

industry. By means of Dreamcast, they aimed to corner more than half the market share in the

next-generation home gaming market.

Segas strategy for designing its Dreamcast platform rested on the three cornerstones of

minimizing the manufacturing costs, improving third party software developer relationships and

standardizing costs across different hardware platforms of arcade, home video and personal

computers.


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Project Dreamcast

Problem Statement:

Sega is facing a situation where they are falling short with the Power VR2 chip which is capable

of giving Dreamcast the computational power to render thousands of characters. The production

company of Power VR2, NEC had underestimated the technological complexity of Power VR2.

This project is the toughest project from NEC. Though they have assigned enough production

facilities to produce the required number they are falling short because of the low yield rates.

They lack the experience of producing a chip with five aluminium layers. Hence Sega needs to

take a decision on the launch of its latest product Dreamcast.

History:

Sega Enterprise is founded by two Americans in 1951 to import arcade games for U.S armedforces in Japan. By 1983 revenues had jumped up to 24.3 billion yen. Since the growth is

slowing down in the arcade business its new president Nakayama decided to enter home video

market. Along with CSK, Sega now had the technical support to enter the home video game

market. The success of their second product Mega Drive proved Nakayamas faith in the market.

The company was doing extremely well in those years. Post war period in 1997 the home video

game market witnessed a price war between Sega, Sony and Nintendo. Low demand coupled

with general economic contraction led to 30% reduction in the Japanese market.

By 1997 Sony was enjoying record sales and profits. Key to this is the repositioning of its

products. Sonys PlayStation mobilized considerable Hardware, Software and Manufacturing

expertise. PlayStation had become more than a toy. Within no time it captured more than 57% of

the domestic market share, 53% in American market and 65% in European market.

Mean while new products from Nintendo and Sega came to the market. Sega came up with its

32-bit offering called Sega Saturn. Sega Saturn suffered from comparison from the PlayStation

both in terms of price and software. The market share of Sega dropped to a pathetic 9.8%

Sony stood as a single dominate player in the market with its PlayStation with Nintendo and

Sega at distinct second and third. The advent of PlayStation the home video game market

witnessed a sea change in the industry. At this stage Sega is willing to come up with a new

product called Dreamcast to improve its hold on the market.


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Project Dreamcast

ProjectDreamcast:

Dreamcast is driven by two goals- to deliver the best gaming experience through the most

versatile console and to win back the no. 1 position in the home video game market. The strategy

for the designing Dreamcast had three elements: to minimize manufacturing costs, to improve

relations with third- party game software developers and to standardize the hardware across

arcade, home video game and the PC play systems.

Sega engaged the third- party software companies right from the beginning of the development

process. The following changes has been taken place to ensure smooth interaction: Engineer/

designer exchanges with third party software houses, Creation of software support within

hardware design section, Participation by third- party software houses in design of hardware and

software development toolkits and Internal and third- party game software developers receive the

same priority for toolkit software release.

To standardize the hardware across arcade, home video and PC play stations Sega formed a

consortium of high technology companies- Hitachi, NEC, VideoLogic, Microsoft and Yamaha to

produce the graphics, acoustics and programming environment standards that would allow

interchangeability across different markets.

Mistakesdone:

Some of the mistakes done by Sega in the process of development of Dreamcast are:

Settling down to Voodoo graphic accelerator from 3Dfx. By giving the general

versions of the most basic library to allow rapid porting of game software did not

resonate well with the game software developers. Without this Voodoo chip did

not impress with its power. Hence they had to choose another chip which can

render four million polygons in a second. They found out a chip called Power

VR2 designed by VideoLogic and manufactured by NEC. Sega had to pay 10

million dollars for the infringement of IPR to 3Dfx. Though programmers are not

willing to use the library API created by Sega to reduce the amount the game

development time they succeeded in convincing them.


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Project Dreamcast

Microsoft which was to develop a new platform Sega- Microsoft Dragon OS

underestimated the technological complexity in developing the flexible and

versatile development environment suitable for porting Dreamcast on to PCs.

Thus the launch of 40 games on the DragonOS toolkit had come down and

majority of them used Ninja. Though it had a contingency plan in Ninja it lost

some valuable time-to- market.

The production company of Power VR2, NEC had underestimated the

technological complexity of Power VR2. This project is the toughest project from

NEC. Though they have assigned enough production facilities to produce the

required number they are falling short because of the low yield rates. They lack

the experience of producing a chip with five aluminium layers.

Evaluation of the alternatives

Sega Enterprise has three alternatives to take decision upon

Delay the launch of the project

Launch with a partial capacity

Manipulate the demand by increasing price ( and adding features)

Following are the advantages and disadvantages of firs two alternatives

Delay the launch of the project

Advantage

Will be able to launch with full capacity so as to meet the demand

Not be facing the problem of stock outs

Disadvantage

A huge marketing campaign has already been launched

Spoil the brand image

Will prove an opportunity for its competitors to take advantage


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Project Dreamcast

2. Launch with partial capacity

Advantage

Will create an instant impact due to its superior graphics system

A certain portion of demand will be satisfied.

A certain segment will be ready to wait for the next release because Dreamcast

commands visual superiority

Disadvantage

There will be a lot of stock-outs

Brand image will be spoiled

Loss of the market segment that is not ready to wait

Following table compares the three alternatives on certain parameters

Delay Launch with partial

capacity

Launch with

increased price

Marketing campaign Not useful Useful Useful

Brand image Spoiled Spoiled Not spoiled

Initial buzz Not created Created Created

Stock outs No Yes No

From the above table it is very clear that launching with increased price with additional feature is

the best of the three alternatives.

From exhibit 4(b)


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Project Dreamcast

From the above table it can be estimated under normal distribution curve that at around 21500

yen approximately 50 % of the target market would be inclined towards the Purchase of product.

At the current target price i.e. 29500 yen about 18% of the market is inclined towards purchase.

Since at the time of launch the expected capacity that could be fulfilled is around 1/3rd of the

inclined market (18%) so we can increase the prices to a level where there is only 1/3 rd of the

demand i.e. is 6%

Through calculations we can work out that the demand will be around 6% at about 35000 yen

Calculation

Assuming mean to be and standard deviation be . We know the equation of a normal curve is

Z = (x- )/

From the above data when x = 30000 (area covered by normal curve is 17.5%), Z = 0.9350 and

at x = 25000, Z = 0.3850

0.3850 = (25000- )/

0.9350 = (30000- )/

Solving the above two equations we get = 9091 and = 21500

Now in order to know the value of x when the area covered is 6%

Z= 1.56

Hence 1.56 = (x- 21500)/9091

X = 35136 yen

Hardware Unit

Price

Inclination to purchase

(Estimate)

Average

30000 Yen 15-20% 17.5%

25000 Yen 30-40% 35%

20000 Yen 95% (assumed) 95%


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Project Dreamcast

It implies that demand will be 6% when the price of the hardware is approx 35000 yen.

This increase in price of approx 5000 yen can be justified by adding modem in the hardware

Following graph represents theprice and inclination to purchase relationship

Recommendation

Launch the project at the scheduled date. The price of the hardware at the time of release will be

35000 yen and it will have an additional feature of modem. This will shrink the demand to their

current level of capacity.

By the time the 100% capacity will be achieved Sega will offer another model without modem at

a lower price 30000 yen. This will tap the rest of the market that is inclined to purchase within

this price range.

Price in thousand

yen

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Documents

Project dreamcast