A New Challenger Approaches: Microsoft Enters the Console Games Market A video game console is a computer system built specifically for playing video games. Some of the earliest instances (early 1970s) of this are Pong, which was only set up to play the single game, or the Atari 2600 (late 70s), where you could play a variety of games on the system with the different game cartridges. Over time, this second form became the norm, where the consumer owned a gaming console and could use that computing power to play a variety of games. As computing power advances, companies replace their consoles with newer, more powerful hardware. Each similar level of hardware performance is called a "generation", and consumers often would look forward and imagine what was to come with each new hardware generation. In the mid to late 1990s, the fifth generation of video game consoles was in full swing, controlled mostly by three distinct companies: Sega, Nintendo, and Sony. Sony's Playstation had led the way with sales of 102 million to date, followed by the Nintendo 64 (32.9 million) and the Sega Saturn (9.26 million). Hoping to get a jump-start and build a consumer base, Sega's Dreamcast released in Japan in November 1998, (US: September 1999) ending the fifth generation and beginning the sixth. It was not until March of 2000 in Japan (US: October 26th 2000) that Sony followed with their Playstation 2 (PS2). Nintendo's Game Cube followed the next year, in late 2001. Sega had risked their future as a console maker on the early launch of the Dreamcast. While there were some fans, there just were not enough attractive games or confidence in the brand to get players to buy in. When Sony and Nintendo began showing the graphical power of their consoles in comparison to the Dreamcast, it was essentially over. Sega discontinued production of the Dreamcast in 2001, having sold 9.13 million units. They stated that they would transition their business to focusing on software for consoles and their arcade game business, which is popular in Japan. With the knockout of Sega and the Dreamcast, Sony followed up the success of the Playstation 1 with another winner in the PS2, eventually selling 155 million units. Nintendo kept their core audience, selling 22 million; Nintendo's big success would come in the following generation with the motion sensor controlled Wii. Announced in 2000, Microsoft made a move to enter the console market with their Xbox. They were later to the market, launching November of 2001. The Xbox would eventually sell 24 million units.Microsoft was the first to release their seventh generation console, the Xbox 360, which would perform significantly better than the original at 84 million units. In comparison, Sony's PS3 sold at 80 million units and Nintendo's Wii sold 101.63 million units. Analysts:

Please help answer questions 1-5.

1) How important were Sega's struggles with the Dreamcast for Microsoft's decision?

2) The console producers receive a royalty for every copy of a game sold on for their console. How does this affect the industry? 3) Did Microsoft have any experience in this market? Why did they think they could compete?

4) The Xbox 360 was the first 7th generation to launch, in November 2005. Nintendo and Sony did not follow suit until 2006. Is timing important in this market? 5) Sega's 6th generation entry, the Dreamcast, released significantly earlier than its competitors but was a failure. Why did Microsoft believe they could perform better?