Speaking to the New York Times, respected Sega of America boss Peter Moore has confirmed that the two giants discussed merging Sega into Microsoft some time ago. The talks were carried out at the highest level and were exclusively conducted between Bill Gates and the late President of Sega Corp, Isao Okawa.
The talks started after Mr Gates held meetings with the top brass at Sony, Nintendo and Sega, to see if a scaled down version of Windows could be used in game hardware as standard. Nintendo and Sony refused but Sega, struggling badly at this point, accepted. This is why there is a little Windows insignia on all Dreamcast hardware units.
It was after these talks, and when the Dreamcast had launched, that Sega started to struggle, prompting renewed buy-out discussions with Microsoft. Microsoft stated clearly that it wanted to buy Sega and merge it into its own gaming division.
"This is an industry that has as much to do with emotion and Hollywood as it does things having to work perfectly out of the box," said Peter Moore, President of Sega of America. "One could argue that Microsoft doesn't really understand any of those issues yet."
All very interesting. Rest assured we will try and fill in the gaps in this story soon.