As someone who has been playing video games for over 20 years, I had a chance to witness the first great console war following the return of the game industry: Sega vs. Nintendo. Both companies have had their share of successes and failures, but in the end it was Sega that dropped out of the console race.

You can learn a lot from someone’s losses compared to their victories and Sega is no exception. In fact, some of Sega’s major blunders are perfect lessons in what not to do, and have been followed by the other members of the industry.

The Importance of Exclusivity:

Establishing a console means having a stable of reliable and profitable brands to build the game library from. In the early days, having a mascot series was vital for getting a new console off the ground. Nintendo had Mario, Sega had Sonic, and even the Playstation was playing with the idea of Crash Bandicoot.

The problem Sega has always had and even to this day as a third party developer, was not building and supporting a variety of brands. If I were to ask you to name five major brand characters from Nintendo, most of you would respond with: Mario, Zelda, Kirby, Samus and Pokémon.

Now if I asked you to do the same with Sega, that’s a different story. Obviously we all know Sonic, but other than that it becomes difficult. Hard-core fans know of Virtua Fighter and maybe even Panzer Dragoon and Phantasy Star.

 How The Industry Learned From Sega

                                                         Jet Set Radio Future

That’s really the issue; Sega had a lot of great exclusive series: Shining Force, Jet Set Radio, Crazy Taxi etc. But they never developed those series as brands at the same level as Nintendo did with their characters. Instead they just relied on Sonic and kept developing different games and genres with him in it.

The problem is that Sonic is a more specific brand then Mario was. With Mario, Nintendo got away with the puzzle, racing, and party games because of the Mario universe was lax enough for those to work. But with Sonic who was aimed at being the “cool alternative” to Mario, they kept on diluting the brand and hurting Sonic’s image. This became apparent with Sonic’s transition into 3D, and how they kept on trying to change the gameplay and universe and failed.

Nintendo on the other hand has developed and done a better job in supporting their brands. This gave Nintendo a stable of characters and genres to draw from for their console library. Instead of stretching the Mario brand thin, they could develop different genres with their lineup. Such as: Zelda with Action Adventure, or high speed racing with F-Zero.

Perhaps the best example of the success of Nintendo’s branding is the Smash Brother series that combined the Nintendo Universe into one game. The popularity of Nintendo’s brands is on par with Disney with their characters or Warner Brothers with the Looney Tunes franchise.

Today, each console developer knows the importance of having exclusive brands. Without Halo, the Xbox would not have had anywhere near the same level of success, or Ratchet and Clank for Sony. But not just having the brands, continuing to support them instead of having them fade away.

Having exclusive brands also allows a system to remain competitive even without having technological advantages. The Nintendo Wii, may not have been able to match the 360 or PS3 graphics wise, but being the only place to find Mario, Zelda, and many other games made that not an issue.

With the Dreamcast, Sega was banking on the system being the most powerful console on the market to convince developers to work on the system to create new brands. But when the Playstation 2 and Xbox appeared, Sega lost their advantage and did not have their own brands to back the system up.

The Consequence of New Hardware:

Creating a new console is a completely different ball-game compared to creating just a game. Not only do you need to spend time and money developing the hardware, but also: getting a launch library set up and making sure that the console has the technology to remain viable over several years. If not, then you’re back to square one and forced to put more time and money into it.

Because of those issues, manufacturers are hesitant on releasing a new platform in the market, and with today’s economy a failed system could sink a company. As a result, this console generation is one of the longest we’ve seen with the 360 and PS3, 7 and 6 years old respectively.

 How The Industry Learned From Sega

                                                                Virtua Fighter 5

But back in the 90s, we were getting a new platform every few years and Sega was no exception. In order to try and match Nintendo, Sega experimented with several different hardware platforms. Sega released: the Genesis, 32X, Sega CD, Sega Saturn and finally the Dreamcast. Compared to Nintendo that had the Snes, Virtual Boy and N64.

All those different platforms cost Sega a lot of money and fractured their game library across them. What’s worse is that the Sega Saturn which came out in 1994, made both the 32X and CD obsolete. Sega effectively killed their own consoles by saturating the market with the different systems.

Imagine if Microsoft instead of working on the rumored “Xbox 720”, released Xbox 520, and 640 over the last 7 years while still having the 360 available. Developers wouldn’t know which platforms to support and the cost of having to buy new platforms would have turned away a lot of the consumer base. While Nintendo’s Virtual Boy failed, they still had the sales from the NES and SNES to turn a profit with the NES considered the console that stayed in production the longest for 20 years.

Creating a new console is a big deal and the ramifications are huge as Nintendo, Sony and Microsoft have learned. The debt Sega piled up from their failed launches was one of the factors of them putting the future of their console business on the Dreamcast, which eventually caused them to back out.

Having a Backup:

Nothing is ever set in stone in a commercial industry. Today’s big hits can become tomorrow’s flops and the best companies know to plan ahead. The same is sure of the console market, with the economy in poor shape and the cost of development increasing; it pays to have a plan B.

In regards to a plan B, one of the secrets to Nintendo’s longevity in the industry would undoubtedly be their dominance of the handheld market. Nintendo had the #1 handheld line since the late 80s, and had that title until the rise of the Smartphone and mobile game industry in the late 00s. All that time gave Nintendo a major bang for their buck and also helped established new brands.

Pokémon is arguably one of Nintendo’s biggest successes that became a commercial icon and system seller for the Game Boy line. Pokemon became a brand that was licensed to movies, card games and other markets that gave Nintendo a steady income when they were behind in the console market.

Both Microsoft and Sony have their respective ways of making money besides their consoles. Microsoft of course has the entire Windows brand, and Sony has their other products.

One of the problems with launching a system is the initial hit in profit due to having to get the new platform to market, while only a few companies have the profit to sustain a period of lost. Microsoft took a huge hit with the Xbox and for the first few years continually lost money. It wasn’t until the platform was established and Xbox Live was in full swing before the system started to make money.

 How The Industry Learned From Sega

                                                               Panzer Dragoon

To be fair to Sega, they did have a plan B that helped them earn money besides the home console market. The bad news was that it was their arcade division. Sega has always had a strong root in the arcade industry with series like Virtua Fighter and the development of new hardware for arcade machines. However, in the early 00s when the arcade market crashed in the US, Sega was faced with two major holes in their pocket: the cost of developing multiple failed consoles and the cost of RnD in the arcade.

Without having a smash hit for the Dreamcast, or the profits they once had from the arcades, Sega announced their exit from the console market in 2001. Fortunately their luck has improved since becoming a third party developer and they have managed to stay commercially viable unlike 3DO.

A successful console can become the goose that lay the golden eggs, but there are a lot of factors that go into making one. Not everyone can make a console and for any prospective new makers, hopefully they can take these lessons to heart.

Josh Bycer

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