In May 1998, Microsoft and Sega announced that the Dreamcast game console would be launched with the help of the Redmond, Washington, software giant. Specifically, Microsoft's Windows CE operating system--the software that controls the basic functions of the device--was to be "the operating system for use with Dreamcast."

Numerous reports have since described Sega's product as being based on Windows CE. But as often happens in the high-tech industry, reality is falling short of promises.

At Dreamcast's high-profile introduction last week, Microsoft was not present, simply because there wasn't anything to call attention to. Of the 18 or so game titles slated for availability at the introduction of Dreamcast, none used the Windows CE operating system, Microsoft has confirmed. Instead, all games so far use Sega's own software in order to program games for the Dreamcast

For Microsoft, the no-show marks another instance in which the company's efforts to expand its business beyond the PC market it now dominates haven't gone as smoothly as hoped. To take another prominent example, after purchasing WebTV in 1996, the company has yet to fully migrate WebTV's software onto the Windows CE.

CE's slow start on Sega

With Sega's machine, no operating system resides in the device until it is loaded in on a disc with each game. With a PC, a built-in hard disk drive permanently stores the operating system for use as soon as a computer is turned on. The advantage, Sega executives say, is that developers can always ship products that use the version of an operating system with the newest features and performance enhancements.

So far, all the games available use Sega's own software.

"Microsoft had initially wanted Windows CE to be Dreamcast's main operating system. It isn't," said Richard Doherty, president of Envisioneering Group.

Doherty noted that rumors Microsoft is developing its own game console surfaced the week that Dreamcast launched as an indication of the company's intense interest in this market is not yet satisfied.

Microsoft, the fourth largest maker of games for the PC, has been keen on the console market because software sales are expanding so rapidly. The overall market for game software in the United States and Europe is expected to grow from $8.7 billion last year to $17.2 billion by 2003, according to Datamonitor. The PC's slice of that pie will shrink from 38 percent to 31 percent by then, Datamonitor predicts, while Sony and Nintendo platform sales will account for 67 percent of all sales

When the plans for Windows CE in the game market were announced last year, the ability for PC game makers to quickly get started in the game console market was among the touted advantages of the software. However, moving a PC game into a game console still takes extra work.

For example, a development firm working on bringing games to market for Red Storm Entertainment was originally supposed to bring out a new game based on characters from author Tom Clancy in time for Dreamcast's September 9th launch. However, the company missed the date because of issues surrounding the use of Windows CE, according to a spokesperson. One factor in the delay--a lack of experience in targeting Windows CE-based software for use on a game console.

Windows CE isn't the only no-show at Dreamcast's launch, either. While a version of WebTV's Internet software running on Windows CE is available in Japan, no such service is yet slated to be made available in the United States, according to Microsoft. For now, Sega's preferred Internet service provider is AT&T's Worldnet service.

Microsoft's early glitches with its foray into the game console market don't mean the company will never be influential in the market, say those in the industry.

The game developers who have titles currently available "are developers who are used to developing software in a short span of time, and used to taking advantage of the newest hardware," explained Neal Robison, vice president of third-party development for Sega.

"In the lifetime of the Dreamcast product, you'll see a lot more folks with PC experience building Windows CE titles," Robison said. For example, Sega's software development arm will bring a Windows CE-based version of a car racing game to the U.S. market by year's end. Probably four titles will use Windows CE by year's end, Microsoft estimates.

Robison estimates that eventually about 30 percent of Sega's game titles will be Windows CE-based.