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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
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