Sega, in its last years as a console maker, made a lot of mistakes. Let's be clear in that I won't be speaking solely as a Sega apologist. I know they screwed up. But, with that said, the Dreamcast was, as the title states, doomed from the start. But, truth be told, it may've been able to be salvaged. In this piece, I'll get into both of those points.
Just as the Sega 32X "add-on" console before it being a stopgap between the legendary Genesis and the not-so legendary Saturn (not to mention, ya know, the N64 and PlayStation consoles), the Sega Dreamcast was an ambitious console that essentially served as an expensive stopgap until the PlayStation 2, XBOX, and Nintendo GameCube consoles were released. Yes, we got Sonic Adventure, the beginnings of two of the most-storied sports sims in NFL 2K and NBA 2K, and the classic RPG Shenmue out of it. Yes, in the West, the Dreamcast had one of the best console launches of all-time, financially-speaking. And yes, it was one of the first consoles that successfully--sort of--achieved online multiplayer capabilities.
But, for every success, there was a failure.
For starters, let's look at its specs and launch. Releasing at a time where Sony and Nintendo were king, the Dreamcast could've carved out a huge niche for itself as that hardcore system that still had a mainstream sensibility to it. But, even releasing the console on time proved to be a monumental task.
The original PowerVR chipsets in the Japanese version were scarce at time of initial production, which dampened sales; demand trumped the number of consoles which were initially released. That's without even getting into many details about the PowerVR lawsuit which arose. After this, key launch titles such as Sonic Adventure, were delayed. On top of that, Sega opted to use its own GD-ROM discs versus DVDs for its games, therefore alienating people who may've used the console as a multifaceted entertainment system (like the PS2 after it). Plus, there were rumors that Sega's president at the time didn't really care how or get why a console should be marketed. So, for those counting at home, that's already four failures and we haven't even gotten to the Western release of the console.
In the West, as mentioned, the system fared better for a while. It was new and toted better graphics than the PlayStation. Plus, games such as Sonic Adventure and the 2K Sports games were prepped for the Western release.
The marketing campaign in the States and abroad was even more aggressive for a console that was already, in Japan, popular but nowhere near profitable. However, Sega suffered a major loss when it could not procure Electronic Arts (EA) for its console. Financially, of course, it was close to impossible. And while we got the 2K Sports games out of it, people were still hesitant to go to a console that didn't have Madden, the sports game which reigned supreme in the U.S., or its EA Sports counterparts (even though, let's be real: NBA 2K was almost always better than its NBA Live counterpart, Jordan-in-Live exclusivity, EA Trax and all). But, the console was released, after the aforementioned campaign, for $199, which set it up to have one of the best console releases of all-time.
Sega, in some ways, seemed to have done it. They'd achieved success without EA (and SquareSoft, later Square Enix, which kept its exclusivity deal with Sony going), they were rolling out exclusives that made the Dreamcast the "go-to" system for a while, and it had a pretty sizable portion of the North American market share for gaming. In Europe, the console was selling well also. And while the company's net income was still in the red, the losses had plateaued a bit after the failure which was Sega Saturn.
And then, the Emotion Engine buzz and the PS2 tech demos happened.
In 1999, Sony, who still had a chokehold on most of the market share, announced the PlayStation 2 was in production. A DVD-ROM-utilizing system, the PS2 was slated to be the console that took gaming to the next level. It was publicized and marketed as a system that had legitimate online capabilities, the ability to showcase characters as more life-like through its "Emotion Engine," and rendered--initially--the Dreamcast obsolete. Yes, the specs came out en masse and proved that statement false, but the damage was done. The Dreamcast began its quick descent.
Even without Nintendo announcing the GameCube in 2000, overall sales for Sega's last console dropped drastically. Between FY 2000 and FY 2001, Sega suffered a loss. While the Western release was successful (and could be theorized to have helped Sega's losses plateau), the money poured into marketing the console (and its continued losses in Japan) created numerous shifts within its parent company.
Additionally, Peter Moore's efforts to bring more brand awareness to the console through rebates, reduced prices, etc. drove profits down further. While Moore's plans helped keep the console above water in the States, it proved to be a moot point as in late-2000, the PS2 (even with its borderline failed launch) and the PlayStation's redesigned PSOne, effectively killed the Dreamcast--and Sega's dreams of staying in the console-designing business.
You know the rest of the story from here. In early-2001, the Dreamcast was discontinued and Sega announced it'd start creating games for other consoles for the first time in its history. Now, my telling of the history of the Dreamcast, mind you, focuses on only a few of the possible reasons for its failure. However, let's get into the second part of this piece: how the Dreamcast could've survived longer.
First, Sega could've skipped the 32X. That's plain and simple. There was absolutely no need for that "console." After the 32X was nixed completely, there could've been more support for the Saturn in America as some American gamers were skittish on Sega after its lack of U.S. support for the system. Even if we take those two failures out of the mix, Sega could've focused more of its attention on the Dreamcast itself versus its numerous add-ons. Hell, holding off on the Japanese release for a bit to iron out the kinks in the system--maybe even including a DVD drive--could've worked wonders for it. That could've alleviated the need for Sega to sell the console at a price which doomed its profitability.
After Sega got its kinks ironed out and--potentially--sold more in Japan, there could've been a larger focus on how its original properties surpassed third-party developers. If you've played an NFL 2K game and then played Madden, you'd know that 2K reigned supreme in a lot of regards (and that's even before you get into the still-great-in-2015-with-its-2004 graphics ESPN NFL 2K5). Actually, going back, Sega slashing prices in hopes of procuring more market share/saving money to regain a license/etc. is a move that's failed the company many, many, many times before. So, the death of the NFL 2K series should've been all but written in the stars. But, I digress.
Had Sega made sure the system was fully operational, made it more into an all-in-one versus just a console, and actually not screwed the pooch on the system overall, the Dreamcast could've survived a bit longer.
...but then Halo arrived. So...it's quite possible that Sega would've been screwed any way you cut it, either from competition, lack of sales, lack of profit, or lack of giving a crap about the system. But hey, what the hell do I know? I'm just a guy who's giving fact-based opinions on something I'm pretty knowledgeable about.