The box looked like an old VCR, the controller was comically large, and it was made by one of the most boring companies on earth. Somehow, the Xbox triumphed and gave Microsoft Corp. the first—and last—successful video game console brand from an American company since Atari.
“We needed to penetrate the living room,” said Steve Ballmer, then the chief executive officer of Microsoft. His former boss, the cofounder Bill Gates, said: “Xbox might seem like an unlikely success story to other people, but it wasn’t a stretch for me to believe in this project and the people who were bringing it to life.”
Video games now account for more than $11 billion a year for Microsoft and have established the Xbox as a premier brand. In the original team’s own words, here is the story of how an ungainly, over-budget project spawned a gaming powerhouse.
A game console is born
Jonathan “Seamus” Blackley was a cog at Microsoft working on programming tools for PC game developers. On the way back from a personal trip in 1999, he had an idea.
SEAMUS BLACKLEY (technology officer for Xbox): I visited my girlfriend who had moved back to Boston. On the flight back, I started thinking, Now, PlayStation had just announced PlayStation 2. They had advertised it was going to have Linux on it, and it was going to be a competitor to the PC. I think there was a little bit of mistranslation, or they didn’t understand that it might be a bad idea to taunt Microsoft this way.
KEVIN BACHUS (director of third-party relations): Sony coming out and saying, “PlayStation 2 is going to redefine the computer world,” that got attention inside of Microsoft.
BLACKLEY: Everybody who made PlayStation games worked on a PC to make the game. And the attack that I realized we could make would be to just make the PC into the console.
It didn’t take long for the team to discover that the initial plan, to design a gaming PC and get other companies to build it, wouldn’t work.
BLACKLEY: There were some guys who worked on Xbox early on who called it Coffin Box because they worried that it would fail and end their career at Microsoft.
RICK THOMPSON (first head of Xbox): (J Allard, general manager) and I had to go into Bill, and we told him it wasn’t going to be Windows. We literally, like, needed towels to wipe the spit off our faces because Bill is screaming and yelling at us. But Bill being Bill, he’s very, very angry that he’d been misled, which he deserved to be. But within a half hour, he was like, “Yeah, I understand. Get out of my office, you two jerks.”
STEVE BALLMER (president and soon-to-be CEO of Microsoft): We made this very conscious break, which was one of the hardest things, to not use real Windows. Did I say, “Gamers are a must-have market?” I probably can’t say that. No, I said, “We must be in the living room, and if the path to being in the living room is gaming, let’s take it.”
The Valentine’s Day massacre
Nine senior employees gathered in the executive boardroom at 4 pm on February 14. Most had dinner plans with their partners that evening. They expected a routine meeting, but it quickly became evident their bosses were not convinced of the plan to invest large sums of money in a console without Windows software.
ROBBIE BACH (second head of Xbox): Bill is about 15 or 20 minutes late, and he’s pissed. And he comes in shouting and slams his fist on the table and says a bunch of things I won’t repeat. The gist of it was: You’re screwing Windows.
ED FRIES (head of first-party games): Bill throws the PowerPoint deck down on the table and says, “This is a f*cking insult to everything I’ve accomplished at this company.”
BACH: I’d been there, at that point, 12 or 13 years and been told I was a knucklehead at least five or six times. It was just kind of the way the company communicated.
BALLMER: I came into that meeting sort of as my first big CEO decision. It also was an emotional time. My dad was sick with cancer. He died a week after that meeting. It was a stressful time. I’m in this new job. I want to do it well, and this is my first big call.
BACH: We’re not getting anywhere. So at some point during the meeting, I said to Steve Ballmer, “We’re not going to convince each other. So let’s just decide not to do this. If you guys are that concerned about it, let’s just stop.” And of course, that led to like another hour of angst about, “Well, Sony has got PlayStation 2 in the living room. They’re calling it a computer. What are we going to do about that?”
FRIES: One of the vice presidents who had been quiet the whole time asks this question, “What about Sony?” So that basically stopped the room, and the way I remember it is, it got quiet for a second, and then Bill got that kind of funny look he gets when he’s thinking and said, “What about Sony?” And he turns to Ballmer, and Ballmer said, “What about Sony?”
BALLMER: I think I knew at the beginning of the meeting that I wanted to say yes. I also knew that, man, this thing was going to get the Roto-Rooter of all Roto-Rooters before I would say yes.
FRIES: Bill turns and says, “I think we should do it.” And then Ballmer says, “I think we should do this.” And then they said, “We’re going to approve this plan just like you guys asked for. We’re going to give you guys everything you want. You wanted $500 million in marketing money. You want to go off into a different set of buildings so people will leave you alone.” That part went super quickly, like five minutes quickly.
BACH: So Steve looks up, and he says, “OK, we’re done. Bill and I will support this to the end.”
FRIES: I walked out of there with Robbie, and I said, in what at that point was 15 years at the company, “That is the weirdest meeting I’ve ever been in.” And then a month later, Bill was onstage at the Game Developers Conference announcing the Xbox.
Release day
On November 15, 2001, the Xbox went on sale in stores across the US Microsoft held a glitzy event in New York City with Gates to mark the occasion.
JOHN O’ROURKE (director of marketing): Bill genuinely was like a little kid. You could see it in his eyes. I was the guy that sort of taught Bill how to play some of the games.
FRIES: Immediately, the day after launch, it was clear Halo was going to be our runaway hit. What it showed was that we didn’t just create a clone of the PlayStation but that we were opening up a new market that was somewhere in between Mario and PC gaming.
BACHUS: Halo was a showcase game. Halo was why you, as an Xbox owner, were smarter than your PlayStation 2-owning friends.
J ALLARD (general manager): Most Xbox “origin” stories celebrate heroics, individuals and anti-Microsoft spirit, when in truth any success Xbox had was based in professionalism, teamwork and the Microsoft spirit. The team was the magic behind the Xbox.
BILL GATES (cofounder of Microsoft): One of my favorite things about Microsoft—and something I still love to do today—was getting to explore big, new ideas that might seem impossible to other people. We built the whole company around that. The early Xbox days were a great example—with a group of people who knew that gaming would be huge, and they believed Microsoft had a role to play even though it would mean starting something completely new.
BLACKLEY: It’s a really honest product, and the reason it still resonates is because it stayed honest. Microsoft is a company that was embarrassed by gamers, that thought it was all 14-year-old, criminal skateboarders playing games. We proved them wrong.
Image credits: Getty Images