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In page Phantasy Star Online:

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Naka decided against creating a massively multiplayer game similar to Ultima Online and EverQuest, which would handle many players simultaneously in a persistent world; the necessary servers would have required two years of programming, and the Dreamcast did not have a hard disk drive to support continuous online patches. Naka was also more interested in working on new projects instead of continuously updating the same game for years, and doubted Sonic Team would be able to keep the game interesting.[4] The team therefore adopted Diablo as their main inspiration, determined to outclass it.[9]