Next month marks the 20th anniversary of Microsoft’s (MSFT) Xbox brand. One of the Big Three console makers, alongside Sony (SONY) and Nintendo (NTDOY), Microsoft has seen its Xbox line grow from an oddly shaped console in 2001 to one of the biggest gaming brands out there.
But the Xbox’s success was never ensured and, according to one of the people behind the brand, the team feared that the original console would never even come to market.
“In those early days...we weren't even sure we were going to get to the launch date, right?” former Xbox chief Robbie Bach told Yahoo Finance. “I mean, there was real uncertainty about whether the console was going to survive just to see the light of day.”
Bach retired from Microsoft in 2010 as the company’s president of entertainment and devices division. He has since launched his new career as an author with the release of his second book, and first novel, “The Wilkes Insurrection,” a contemporary thriller about anarchists trying to rip the country apart.
'The original Xbox lost somewhere between $5 billion and $7 billion'
Microsoft’s Xbox unit, which includes software and hardware sales and subscription services like its Xbox Live and Xbox Game pass, saw revenue growth of 23% in the company’s fiscal 2021. In Q4, the tech giant reported year-over-year Xbox hardware revenue of 172% on the strength of the Xbox Series X and Xbox Series X consoles.
Microsoft doesn’t break out specific revenue numbers for the Xbox line, instead bundling it with its More Personal Computing business, which saw $14.1 billion in revenue in the company’s fiscal Q4.
So far, the Xbox Series X and Series S have been Microsoft’s fastest selling consoles. And like the PlayStation 5, demand continues to outpace supply due to the chip shortage.
And while the Series X and S are just a year into their lifetimes, their success appears as though it will easily outpace that of the original Xbox.
“The original Xbox lost somewhere between $5 billion and $7 billion, depending on how you do the cost accounting,” Bach said.
“The guy who loses $5 or $7 billion doesn't survive, nor does the project. But Microsoft...pretty early on said, we want a next generation. And Bill [Gates] and [then-CEO Steve Ballmer] challenged us to do it right. And the team really got organized on the strategy.”
By the time the first-generation Xbox was discontinued in 2005, Microsoft sold some 24 million units. Its contemporary, Sony’s PlayStation 2, however, sold a whopping 155 million units. The Xbox 360, however, closed the gap with Sony’s PlayStation 3, selling 84 million units to Sony’s 87 million.
Part of Xbox’s turnaround had to do with its online service Xbox Live, which allowed gamers to easily connect and play with each other over the internet. This wasn’t a novel concept — PC gamers had been playing online for years. Still, Microsoft’s simple approach made Xbox Live a winner.
“When people ask ‘Why did Xbox succeed?’ I always say two things: ‘Halo’ [a hit game] and Xbox Live,” Back said. “Without those two things, I think the console probably doesn't survive and the brand doesn't get built.”
The Xbox 360 also benefited by undercutting the PlayStation 3’s launch price by $100 to $200. And Bach points to the fact that the Xbox had access to Microsoft’s deep pockets.
“The one advantage we had over most startups was we were super well-funded,” he said. “So we could make a few mistakes that cost us money. But you couldn't make mistakes that cost you...reputation or brand-building capability. And so we really had to focus on getting it right. And that led to just crazy amounts of work.”
Microsoft’s third console, the Xbox One, was released in 2013, but it didn’t perform nearly as well as the Xbox 360. The company sold about 51 million units to the PlayStation 4’s 116 million. Part of the reason for the poor showing was Microsoft’s decision to make the Xbox One about $100 more expensive than the PlayStation 4 at launch. By that time, however, Bach had left the business.
Now he spends his time as a public speaker and author.
“I think the inspiration [for ‘The Wilkes Insurrection’] goes all the way back to Xbox,” Bach said. “You know, ‘Halo,’ what was ‘Halo’ about? It was telling a story. And video games themselves are storytelling. And I learned that storytelling and that creativity during my time on Xbox.”
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