To launch a new console, you really need 50-60 billion yen at the least. You have to sell those first million units. If your costs are 30,000 yen per unit, then that comes to 30 billion yen for 1 million units. And you have to design the hardware and create the electronics, make the molds and do the tooling, and this will soon use about 10 billion yen. And then you have to create the games and do advertising. You need about 500-600 people. Without all this, you can’t launch a home console. You can’t do it little by little. You really have to go all in.

Sony had annual sales of 3 trillion yen. They made their own CD-ROM drives. They had their own semiconductor factories. Once when I was talking with Ken Kutaragi [the creator of the PlayStation], he said “Hideki-chan”—he refers to me using the “chan” diminutive—“Hideki-chan, there’s no way you can beat me. Where are you buying your processors? From Hitachi. From Yamaha. What about your CD-ROM drives? You’re buying everything. By buying from Hitachi, Hitachi is profiting. You can’t make anything yourselves. We can make everything ourselves, including custom parts. We have our own factories.” Near Nakashinden, they had a huge factory where they made audio equipment that they were using for the PlayStation. Their cost structure was completely different.

“That’s the way it is, Hideki-chan,” Kutaragi told me. “So quit the hardware business. Why not just do software? We’ll give you favorable treatment.” He wanted us to go third party. We had been going for so long in the hardware business, for better or worse, and to go third party now? We had been half-heartedly successful in America once, and this made it impossible to quit the hardware business. Maybe if the Mega Drive, the Genesis, had been a failure, things would have been different. But we had a strange taste of success.

At that time, Sega’s brand image was incredible. When you powered on a Sega console, ‘SEGA’ would always appear first. Even if it was a third party game from Namco (or anybody else), Sega’s name always appeared first, followed by Namco’s. So anybody that had a Sega console, it didn’t matter what game they played, they would see Sega’s name. This helped plant the Sega brand in peoples’ minds. This was incredibly effective. To go from that to a Sony third party… Well, we had already started so it was too late.

I would have a polite dinner with Kutaragi about once every three months. He’d tell me that because we released a console last time, they would be the ones to do so this time. We are the same age, although he’s two or three months older. I would call him the polite “Kutaragi-san,” although sometimes I’d call him “Ken-chan.” Because I was two or three months younger, he’d say “Hideki-chan, please give up!”

(http://www.autoadmit.com/thread.php?thread_id=5373789&forum_id=2E#46554861)