Sega recently announced that it will stop producing its Dreamcast video-game console. The move is a bitter blow for the company, which has been a technology leader since it entered the business over a decade ago, and for players who thrive on Dreamcast games. Fortunately for both fans and shareholders, Sega is not unplugging for good; it is merely refocusing. And it is about time.
Sega is a case study in "new economics." Production of hardware -- game consoles -- was a money loser, but the company hoped to cover the red ink with software sales -- video games themselves, that could only be played on Sega machines. The strategy is not unique to Sega or the industry -- think razors and razor blades. But Sega did not deliver.
Dreamcast was Sega's latest console; it features state-of-the-art graphics and high-speed Internet access. Gamers and reviewers raved, but that did not translate into profit.