It was something completely new, they had no competition (in the online field), a lot less people used it compared to today's online services and Sega really needed the money. Money also had more value back then. Everything with gaming was more expensive, but the dollar value was also there to support it. Also, I want to address some of the history revisionists here. Here's the truth about Dreamcast.
First of all it was not piece of junk hardware. It had very good technology for it's time and developers loved it because of how easy it was for game development. It was meant to be everything that the Sega Saturn wasn't. A DVD drive was not included because Sega simply could not afford it. They wanted to include it and were ell aware of the consequences of not having it but they didn't have a choice. They also (rightly) figured that GD rooms would be fine for a while because it would be years before developers would actually need most of the storage that DVD's provided. From it's VMU to the built in online connection, Dreamcast was way ahead of it's time. Ironically, the PS2, which had a lot more financial backing was a piece of junk and developers hated it. Had it not been for Sony's success with the PS1, most developers would have chosen the Dreamcast or GameCube as their system of choice.
Secondly, the library that Dreamcast had in it's short lifespan was nothing short of phenomenal. Unlike the systems nowadays where mediocre launch titles are the norm, Dreamcast had a good number of high quality launch titles and throughout 2000, the system had a constant flow of quality software, both exclusive and multiplatform. The 2000 holidays had one of the best lineup of games anybody could hope to have in terms of the number of releases, the amount of quality releases and when compared to the competition which consisted of the PS2 and it's mediocre launch titles, the PS1 with it's last big year of a few quality releases, and the N64 which had good holiday releases like Zelda: Majora's Mask, Banjo-Toole, and WWF: No Mercy, but unlike dreamcast, there wasn't a large number of quality games. Yes, many of Dreamcast's exclusive games were ported to other systems, but that was AFTER the Dreamcast was discontinued. Even when it was discontinued, it went out with good game releases.
As far as Dreamcast's online service was concerned, it was amazing for it's time and it didn't bomb. A lot of players supported it given the number of people who owned the system and there was a lot of hype behind it. Also, it was years in the making. Since the Genesis, Sega had been experimenting with online to a degree. It was something they eventually had to do. Years of Experimenting nearly paid off.
The truth is Dreamcast was pretty much doomed even before it was released. Due to the failure of Sega Saturn, Sega was going broke and they decided make one last $600 million dollar investment into the Dreamcast knowing that it would most likely be their last game system. Dreamcast didn't fail because of marketing since the marketing for the system was great. It didn't fail because hardware sales were bad or because software sales were bad. It didn't fail because it's online service bombed. It didn't fail because of pirated software. It failed because the system didn't do good enough within the amount of time that they had. It failed because the financial backing wasn't there. If Sega had the finances Nintendo had, they could have kept the system going and maybe after another year, they might have turned a profit from it and had a healthy business. 10 million customers in 2 years was a pretty strong user base , especially back then. And who knows, if Dreamcast had been a more viable business venture, maybe Microsoft would have held off on the Xbox just a little longer.
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