The Executive Retreat: March 1999
The 1999 version of Microsoft’s yearly executive offsite retreat provided a key moment in the history of Microsoft’s move toward a game console, but few people recognized its significance in the moment, and, although several people recall it still, their memories are expressed with slightly different inflections.
According to Bachus, it was at the offsite that Rick Thompson introduced the question that had been nagging Bill Gates for some time: Why had Microsoft been unsuccessful at introducing products under $500, such as interactive television and mobile devices? Gates was concerned about how this problem affected the investments they had made in the game industry, between the hardware and game divisions, as well as DirectX. He wanted to know how Microsoft could become more successful with these investments.
Robbie Bach, who was at the time the president of the Entertainment & Devices division and Ed Fries’ boss, also believes that Thompson introduced the concept of a console. “We were doing this process they call ‘open space’ where people propose topics. Then everybody decides which topics they want to discuss and you go discuss them for a couple of hours. And Rick Thompson proposed that Microsoft do a video game console.”
Thompson, who joined Microsoft in 1987 and became the head of the Hardware Division in 1995, recalls the open space process a little differently. “One of the things we used to do was these breakout groups to talk about different things. The way you arranged the breakout groups was, you had a pad of paper—one of those big easel things. You’d write a topic down on it—a few words—and you’d hold it to your chest, and everybody would stand in a big circle and read each other’s topics.” Thompson wrote something that mentioned Sony, AT&T and AOL and held it up like the others. His topic was meant to explore the potential threat that these three companies posed if they were to collaborate on a multifunction box. Essentially, he posed a question and suggested an answer that was bound to concern people at Microsoft: “What happens with Sony, for the money they put toward subsidizing a game console, AT&T subsidizing cable modems, and AOL offering huge subsidies as well, if they all got together to create a box that was a combination game console, cable modem and AOL subscription box? The amount of subsidies that could be put to that box would make the box free and stacked up at the local Safeway.” Thompson didn’t expect this collaboration would actually occur, but he thought it a provoking enough idea to spark some good discussion.
At least one person was provoked by the ensuing discussion of Thompson’s proposition, and his name was Bill Gates. Following the retreat, Gates fired off an email requesting that people look around the company for potential ways to respond to this possible threat. According to Thompson, people showed little interest in cable boxes, so the discussion began to center on game consoles, which could function as a central unit upon which other functionality could be added.
It was during and shortly after the executive retreat that the first inklings of the conflict to come appeared, as different groups immediately revealed their visions of what Microsoft’s response might be—what approach Microsoft should take toward a console or a gaming PC. On the one hand, you had Craig Mundie, an executive vice president who was involved with the ex-WebTV group and the Windows CE people, who at the time were working with Sega on the Dreamcast. On the other hand, you had five guys from DirectX, DRG, and Windows—the very unofficial xBox group.
Around the same time as the executive retreat, Microsoft split the Windows division into separate enterprise and consumer divisions, and consumer Windows was given the task of figuring out what kinds of devices, platforms, or PC appliances they could develop, or influence the industry to produce, that would make the consumer Windows identity successful.
According to Nat Brown, who had already been researching solutions to the problem of sub-$500 devices, one proposal on the consumer side was to create specialty Windows-based PCs. For instance, there might be a kitchen PC that was little more than an electronic recipe box, or a PC that was basically a web browser box. There would be “real” PCs and “non-real” PCs, the difference being whether they could run Office or not. There were also ideas for other types of home devices, such as PCs for students, and, of course, dedicated gaming PCs.