Between March and June 1999 several “Bill” meetings took place in which competing visions for Microsoft’s game system strategy vied for Bill Gates’ approval. In its way, each successive meeting was a go/no go situation—convincing Gates at each occasion that the ideas being put forth were at least worth pursuing further. The first of those meetings happened under somewhat false pretenses, or at least with a touch of bait-and-switch. The dates presented in the following section are sometimes approximate, based on the memories of some of the participants. In other cases, they are based on meeting documents I was able to attain. (Many of the original “Bill” meeting slide decks are reproduced in the Online Appendix.
The First “Bill” Meeting
April 30, 1999: The xBox guys, still an unsanctioned and unfunded skunk-works group, decided that they had to have a meeting with Bill Gates, so Nat Brown pulled a few strings and suggested a meeting based on “important and timely” information about unified graphics architecture (UGA), which Brown knew was a hot button for Gates, along with unified text editing, unified file system, and unified whatever. They did talk about UGA, which Brown observes managed to upset a bunch of people who, according to protocol should have attended, but then they segued into a presentation of the business side of PlayStation: their sales volume, profitability from games, overall profitability, unit volume and software attach rate. “There was a four to five title attach rate for PlayStation. Bill easily did the math. There’s 120 million units. That’s more than a hundred million pieces of software at an average price of $60. Those are very attractive numbers. Those are ‘Bill realm’ numbers.”
By the time the meeting ended, he had presented the idea of a controlled environment system that would rival console performance and be built by OEMs. Brown remembers, “It was kind of naughty. I had been in enough Bill reviews that I knew a bunch of his favorite hot buttons, and the fact that PCs boot slowly and applications take forever to launch, that the file system gets corrupt, that applications shit on each other and prevent each other from loading and unloading and leave crap on your hard drive… I knew all of these hot buttons, and so I said, ‘This is what a well-defined console should do. This is the kind of work that we should do in a controlled environment with some OEMs, or with a dedicated version of the OS, so that we can take what we learn about isolating apps and fast boot and fast launch and quick shut-off and fast hibernate and controlling graphics and controlling input devices and hot plug-and-play—things we were horrible at—perfect them in this system so that we can later put them in the rest of the system.’” The idea that the features Brown named could begin in this dedicated, console-like Windows machine, but eventually be applied to the wider range of PCs was exactly what Gates wanted to hear.
This first meeting with Gates did its job—perhaps too well as Brown recounts: “There was a lot of mail to folks in the DirectX group, who were managers and were above Otto, some who were tentatively above me… development managers and directors who sent us shit mail saying, ‘What are you doing presenting about UGA and PC OEMS without including me?’ And it’s like, well, whatever. We just are. We really don’t have time to talk to you about it. ‘I want to see your slides. I want to review them next time, before you go in front of Bill.’” That’s just classic Microsoft stuff. Whatever. The cat was out of the bag now, and Gates wanted to know more.
The Second “Bill” Meeting
May 5, 1999: The next “Bill” meeting included Berkes, Hase, Blackley, Bachus, and Brown, but also Craig Mundie and some of the WebTV and Windows CE developers. At the meeting, the WebTV group, who were all ex-3DO veterans, claimed to have been planning in secret to develop their own console solution, and the CE guys promoted their work with Sega as the first step in getting Microsoft into the console space. Mundie—a senior vice president—held the highest rank among the participants (other than Bill Gates of course) and became their champion.
Where the first meeting had been small, spontaneous, and productive, the next four were what Brown called “cage matches” while others dubbed them “beauty contests.” Moreover, Gates picked Mundie to supervise the project strategy, which put him in charge of the agenda. It was immediately clear that there was going to be a battle over whose approach would be adopted. It was Mundie, with the WebTV unit and the Windows CE groups against who? An unofficial group of people from different divisions at Microsoft—DRG, DirectX, and Windows. Moreover, Mundie’s guys were smart and already had experience in working with consoles.
In this second meeting, Mundie gave his opposition 20 minutes to present their ideas, and then said that the WebTV guys were going to pitch something called Dolphin. Battle lines were being drawn. According to Brown, “We didn’t even realize that we were at the pitch stage. That was the first meeting, but once we had this kind of bake off/cage match meeting, we realized that we had to figure out how to shoot that thing in the head and be done with it.”
(Another example and reminder of Brad Silverberg’s statement previously quoted in Game of X v.2: “You have to be firm in your convictions, sound in your technical basis and be willing to withstand waves and waves and waves of conflicts. And what you have to learn about Microsoft is that people are relentless, and even if they lose a battle, they just keep coming after you and after you and after you… The only time you really know the decision sticks is when the product is on the shelf. Until then, it can still be overturned.”)
The Third “Bill” Meeting
The third meeting probably took place on May 14, 1999.
In this meeting, Mundie’s team argued the importance of the investment that had been made in Windows CE on Dreamcast, and how that was a promising direction that was already in motion. His team also made the point that they already had custom 3D hardware that had been developed in-house (Talisman). According to Brown, this second point was probably their undoing. “The fact that they had the Windows CE team, that they had a history of 3D graphics, all that was sort of playing in their favor. The fact that they were technologically five years behind the curve in terms of where NVidia was… that was the problem. You couldn’t stand up technically and say, ‘I’ve got 10 guys in the Bay Area who are currently pushing this many triangles, and they’re going to push 10,000x or 100,000x in the next round… It didn’t make any sense. You knew from the R&D budget of NVidia who was going to win that particular fight.”
Still, the Dolphin group did have a few more advantages. They had a team already in the Bay Area, so there was no need to add head count, which translated into a huge financial advantage. Because employees meant more costly salaries; head count was a nearly perpetual issue at Microsoft. The other team also had experience with industrial design and consoles, and—a big one—Microsoft had already spent $425 million buying them. According to Brown, there were good arguments against them, too, including: inferior graphics technology, and “the Windows CE was a weak operating system with no developer momentum, and its tool chain was lousy.”
Mundie countered that they had this underutilized asset that they’d spent $425 million to acquire (the ex-3DO team), that they had custom chip design people (Talisman), and an ongoing relationship with Sega (Dreamcast). His suggestion was to do custom hardware with Sega.
In reality, several of the members of the original xBox team showed little respect for Mundie and the groups he supported, and in typical DRG fashion, they saw the enemy’s weaknesses and were determined to do what they believed would provide the best solution to solving the problems at hand. In addition to the inferiority of their graphics solution when compared with what was coming from companies like NVidia, they saw the Windows CE technology as being five years old and never the finest operating system in the first place. Brown expresses his team’s sentiment, “The reality is that everyone had to face it, from Bill to Craig Mundie, and all the managers in that room who had worked on it, they needed to face the reality that their tools were broken, and their software was bad.”
While having an ongoing battle with the WebTV and Windows CE contingent was immensely frustrating, especially with the PlayStation 2 launch looming, in some ways it was a blessing in disguise. After the “third” meeting, the xBox group refined their strategies and solidified their position. And they changed tactics. Much as Alex St. John had done during the battles between DirectX and Talisman, Brown now took on the political role, publically fighting the good fight against what they saw as a misguided adversary. Meanwhile, he told the others essentially, “Hey Otto, Seamus, and Kevin to some degree, why don’t you… Go. Build. Stuff.”
Along with a strategy of diversion and political infighting, they were actively seeking allies, talking to key people around the company, gaining their perspectives, addressing their concerns, and securing their support—people like Rick Rashid at Microsoft Research, Ed Fries, Robbie Bach, Stuart Moulder, and others. They also talked with video board manufacturers, like NVidia, 3Dfx, and ATI to get an idea about what they were working on and what the price points would be. Although people at Intel expressed skepticism about the project at the time, they, too, came through eventually.
Bachus even relates that they had found an original PlayStation emulator for Windows called Bleem!*, and contemplated the idea of building that into their system. Bachus states, “Every time we came back into the boardroom, we had delayed some damage from what they were doing, we had refined our strategy with criticism, we had discovered more little nuggets of things that Microsoft should be afraid of about Sony, and we had more and more kind of working prototypes of things.”
*Bachus and Bob McBreen, a ten-year Microsoft veteran and the director of business development for Xbox, did go down to Los Angeles to meet with the Bleem! guys and offered them a sizeable amount of money for the technology. McBreen says, “I’m going to guess it was right around ten million dollars.” But they counteroffered with a non-exclusive license and a prepaid one hundred million dollars of future royalties. “At that point, we just said, ‘Thank you very much. We know what Sony’s going to do to you without somebody like us.’” Bleem! was released commercially in 1999, and ran on both PCs and Dreamcast. It used DirectX and required a CD to provide copy protection. Two days after the product launched, Sony filed suit against them. Bleem! ultimately prevailed in court, but the company went out of business soon afterward, possibly from the weight of the legal costs.
Fast Boot in June
“They went and put together a demo for Bill Gates where they booted Windows NT in under three seconds, and that just blew everybody’s minds. ‘How did you do that?’ Bill would ask. ‘Well we hardwired a bunch of things and kicked the bios out…’ And Bill just absolutely thought that was the sexiest thing on Earth. Which is super funny. He always loved a good demo. The ex-3DO guys did a much more business approach, saying here’s how much the hardware could cost, here’s all the different parts of the business model, and that kind of stuff.”
-Rick Thompson
In one of the “Bill” meetings, probably on June 6 or 7, the xBox team arrived with two items. One was prototype of what a Microsoft console might look like.
An early Xbox prototype. Not necessarily the one used in the meeting.
It was created by the mouse team, which was between releases, with the support of their boss, Robbie Bach. As Brown remembers it, “The guys over on the mouse team, this is what they like to do. They like to sit there with some charcoal and sketch. So we just asked them to reimagine something and form it. And they’re going, ‘Oh, I don’t know if I can use the former,” and I’m saying, ‘Charge Nat.’ How much could it cost? Like $2000. Like who’s gonna care? We don’t care. Come on. Have fun with it. Stay late.”
The prototype was a physical reminder of what they were discussing. Brown describes it as “a coated-foam prototype of the horizontal ‘aerodynamic’ xbox that looked similar to the vertical xbox. It was great for show-and-tell, and helped break up the monotony of endless slide decks, bullet points, and spreadsheets. It was tangible. For the first time, people were exposed to something that at least looked like a Microsoft console system. But it was the other item they brought that really closed the show.
It wasn’t much to look at, just an ugly, small form-factor case, open-chassis PC with a small digital readout dangling out the top, sort of hot-glued to face forward and not fall over. “The readout initialized at 00:00:00 when you turned the machine on and stopped itself at 00:04:20 or 00:06:21 or various things like that when the BIOS made it past POST. We were using a super kludgy restore-from-hibernate.”
As Brown remembers it, “The other group was saying, ‘We only brought slides. It’s not fair that you brought hardware.’ And we’re like, ‘Why is that not fair? What are you talking about? It’s just, we’re kinda busy building stuff, and you guys are dorking around trying to derail us. We don’t know why.’ But we did know why. They wanted to remain relevant in the game space. But it was really funny to come in this one time and to literally have them before the executive team in the room, complaining that we had made and brought hardware with us. And because we knew that Bill goes to 12 horrible board meetings a day in his boardroom—or used to—and the guy’s a technology person. What he would like to do is see cool technology.
“So we came in and we had cool technology. And of course, no matter what the agenda was for the meeting, Bill was going to say, ‘OK. What’s with the computer with the clock on it?’ And we said, ‘We’re not going to get to that yet… but we can if you want to.’ And he said, ‘Well, what is it?’ And we said, ‘Well, this shows you how fast we can boot a real PC to Windows 95. And here’s a raw boot, and here’s a hibernate boot, and here’s how fast they are.’ Not entirely intentionally on our part—we didn’t want to derail the entire hour and a half that we had—but we did lose quite a bit of time where Bill was saying, ‘What the fuck? You just booted a PC… like if my PC did this every day, you would save me an hour a day. Why can’t we do this? What idiot here is not doing what they just did and making all the OEMs do it?’”
June 17, 1999: The Blue Book
The June 5th meeting with Gates resulted in the publication of three short—mostly technical—reports from June 6 and 7, and a longer one dated June 17, a bound tome they called the Blue Book. The Blue Book contained a printed version of a 65-slide PowerPoint presentation called Game Console Follow-up, which detailed the xBox current strategy and approach. Along with the main presentation, there were three attached reports: a report from International Data Corporation called What to Play Next? IDC’s Five-Year Forecast for the U.S. Electronic Gaming Industry, an in-depth report about Sony and the PlayStation 2 by Merrill Lynch & Co., and a nine-page report titled, XBOX: AMD Bill of Materials Estimate, which detailed the costs of different hardware configurations and discussed the different options available. This report was based on the idea of working with AMD for the CPU.
The Blue Book offered a complete, official looking and up-to-date summary of the xBox design and strategy at the time, along with supporting documentation that helped make the case for a Windows game machine developed by outside hardware vendors. It was meant to influence Bill Gates at the mid-June meeting, and it succeeded.
In the June 17th slide deck, Slide 7 of the report introduces “the xBox,” and the project definition reads:
• Create a new consumer platform—’xBox’
• This new platform is based on Windows technology and the PC architecture
• This new platform is designed specifically for the living room
The plan detailed in the report still postulated a combination of logo and certification programs, and offered comparisons and contrasts between its approach and those of both PS2 and Dolphin. Although many factors remained the same, one of the key assertions was that the xBox technology would be rapidly improved every two years, something that console systems could not match. They also suggested two kinds of software approaches from third parties:
• “xBox Logoed” encouraged existing PC game developers to repackage their existing titles and use distinctive packaging and logos as being compliant with the xBox requirements. To qualify, they would have to pass a strict evaluation, but would be eligible for co-marketing opportunities with Microsoft.
• “xBox Certified,” required no evaluation, but did not allow developers to display the xBox distinctive packaging and logo. Otherwise, they had only to agree to application isolation, customer privacy, indemnity, and parental control. The plan would also allow for xBox content to run on “capable” PCs as well.
One of the advantages they saw was that the xBox machines could run both PC and console style games. The report mentioned that PC games were consistent award winners at prestigious game shows like E3, so having both would ultimately give them a content advantage. In addition, they anticipated a far more open business model that encouraged developers to make games for the xBox machines with familiar development tools that the developers already knew how to use, plus the ability to capitalize on improvements in hardware more quickly than regular consoles could. This xBox version was planned to be a sealed box, like a console, which simplified development considerably because developers didn’t have to worry about multiple graphics and sound cards or input devices. However, new upgraded versions could be produced more frequently than consoles could match, using the best technology at the time for each upgrade. At $299, and with the addition of hard drive, Ethernet connection, and built-in DVD, they saw it as a competitive option to consoles like PlayStation 2 when it came out.
The promise of the xBox was that it would boot in under 10 seconds, use minimal UI with zero installation along with auto-play/stop. In addition, it must have parental controls and be open to emulation options. And how this worked? It would contain no Windows desktop, just a simple shell. It would run one application at a time, directly from CD and would evoke the installer when needed. There would be a UI for parental locks and for disk management and game removal, but not much more.
The report also included various marketing strategies and alternate year 2000 or 2001 launch dates, with advantages and risks associated with each. At the end of the presentation, they issued what was to be the first, but not the last, ultimatum. They promised that they could deliver this system, complete with OEMs and signed-up game developers for the year 2000, if it was approved within two weeks. On the other hand, they said, “If you say no, we go back to our day jobs building Millennium and Neptune.”
For months, they had been heavily schmoozing game developers. Brown says, “Ted would fly them up. Or we would go to them. We would say, ‘Look. We may get shot in the head, but this is what we’re fighting for right now. Can you voice your support? Can you tell your Developer Relations, can you tell your favorite high-level person at Microsoft? Can you tell your favorite high-level person at Microsoft that you hate the 3DO team, that you hate Windows CE?’ Ok. Not necessarily that they hate Windows CE, but that they didn’t want to use Windows CE for games, that it made no sense, didn’t match the Windows/DirectX APIs, wasn’t a responsive or game-knowledgeable team. And they were like, ‘Gladly. You don’t even have to buy me dinner, but thanks for buying me dinner.’”
As is often the case with the passage of time, Kevin Bachus doesn’t remember flying anybody up to Microsoft. “As I recall this was all done almost entirely through e-mail and we would circulate the e-mails like they were made of gold. These were people at very successful companies and we were dangling the prospect of a new game console in front of them. Their interest in supporting our plan came from our use of mature APIs and development tools and familiar hardware architectures. The WebTV/3DO/CE plan was to use a completely new and foreign hardware base with a limited and still-immature API/toolset.”
Brown does specifically remember at least one dinner they put on with about 30-40 people at the Icon Grill in Seattle. He remembers Tim Sweeney and John Carmack attending because they were game programming heroes of his.
Interestingly, Bachus says that they ran into some resistance from one of the companies that had always been very supportive—Epic. “The biggest disagreement we had with Epic was that they really, really wanted us to do a mouse and keyboard, largely because that was what their games anticipated. And unlike where we ended up with Halo, they couldn’t envision how an FPS would exist on a console without a mouse/keyboard. We on the other hand felt that a mouse and keyboard would forever establish our identity as a PC, and we were adamant that we not ship them because we were already fighting the assumption that Microsoft would, of course, deliver a living room PC not a console.”
Overall, the response from developers was very supportive, and their advocacy finally paid off.
As the mid-June meeting came to an end, Gates told Craig Mundie that they were done with the bake-off, and that he should keep working with Sega, but stop trying to position Dolphin against the xBox. This sounded like a big fat yes, and it was. But there was a caveat. Gates told them that the amount of expenditures involved were high enough that he was not going to green light it without having Steve Ballmer involved. Gates also revealed his plan to transition from day-to-day operations as CEO to a new role as chairman, where he would concentrate more on software strategy. That meant that Ballmer* would soon take over the day-to-day reins of the company, another good reason to get him involved in what could turn out to be a multi-billion dollar decision.
Mike Calligaro was the Dreamcast dev lead at the time and a member of the team arguing their case against the proto-xBox team. “We just assumed that because we’d already done a game system, we’d do the next one,” he said. “So I won’t say we didn’t take it seriously.—you take a Bill presentation seriously—but I think they had more to prove and were more scrappy, and did their homework a little more.”
Assuming that they had all the advantages, Mundie’s team didn’t expect a serious challenge from the other side. And though they didn’t come in with such thoroughly researched pitch decks, they still had good arguments in their favor.
So what really turned the tide? According to Calligaro it was Windows and the promise of a faster boot-up. “We pitched whatever we pitched: We’ve done this. We know what we’re doing. Let’s do it again. And they said, “We’re going to make Windows 95 boot in 5 seconds.’ And Bill said, ‘Why wouldn’t I want that anyway? Even if I don’t get a game system out of this, if you give me Windows 95 booting in 5 seconds, I win.’”
Calligaro remembers something that he thinks the president of Sega said to Gates when he was considering creating a game console. “All that happens with a game system is you lose a billion dollars, and all that does is get you the ability to lose another billion dollars.” So Calligaro thinks he ultimately chose the xBox team because if he was going to lose billions of dollars on a game system, he could gain many more by significantly improving Windows, and that was, according to Calligaro, what ultimately determined the outcome.
PC vs. PlayStation
As part of their effective ongoing strategy to keep the pressure on and in their favor, the xBox group issued another report for the next meeting. The report, dated July 2nd 1999, was entitled, xbox: a windows game console (and entertainment platform) and was probably the one used at the upcoming meeting, the first that would include Ballmer.
The first section of this report was called “brief situational analysis,” while the second section repeated the June 17th description of xBox. But it was the in the first part that arguably the most interesting material appeared: seven new slides that first ratcheted up fear of consoles, and then positioned Sony’s architecture against that of the PC while looking at anticipated hardware trends.
Three slides carried the title: “#1: Is there a platform threat?” Three more were titled: “Is the PC architecture capable?” The final slide was called: “Sony Business Model.”
The first slide displayed a graph and accompanying statistics, like the fact that, while 50% of retail consumer software revenues came from games, only 1 in 30 of the top-selling games (in 1998) were for PC. The slide also contended that, while this market was growing, PC was losing developers to consoles.
The next slide displayed graphs and statistics that showed how consoles had out-performed PCs in hardware units, software units and revenue. More scary facts and numbers.
Slide #6 included graphs that showed console gains in run-rate (essentially extrapolated sales trends) was catching up with PC, and that the original PlayStation was outselling the top five home PC OEMs combined.
The next two slides compared and contrasted the basic graphics architectures of the PC and the PlayStation 2, concluding that each was very capable, but that the PS2 had advantages based on bus and CPU speed that would allow for more novel and customized approaches by developers. Although one solution, which eventually did get adopted, was to add more computing capabilities to the graphics chips, this solution was not favored in the July report.
The conclusion at the end was that content, not hardware, would determine the winner, and that both the PC and the PS2 had advantages. In the subsequent xBox presentation, they promised to present some solutions, including “details on suggested ISV push that would assist us with a console as well.” Was this an allusion to a Microsoft-built console?
There was one additional slide after the conclusions, which detailed Sony’s business model, and among other things, claimed that profits from software accounted for 70% of PlayStation’s overall profits (approximately $1.2 billion in 1990). The slide also showed a graph that predicted PS2 software volumes would far surpass those of the PlayStation at its peak.
On the next three pages I’ve included an ambitious and carefully worked out project plan for “xBox” and architecture sketch that were developed in June 1999 and was part of the team’s upcoming pitch.
June
> preliminary platform specification
> preliminary DXS graphics hardware spec
> preliminary OS dev plan
> functional UI/OOBE design
o persistent storage UI
o DVD/CD player
o pre-installed title selection
o overall functionality spec (turn-on/off, disk in/out, partial installation, etc.)
> preliminary development budget
> working demo prototype
> billg demo
July
> finalized OS dev plan
> finalized development budget
> OS team 60% staffed
> preliminary platform logo requirement specification
> investigative OS work complete
> DX8 graphics hardware spec RC
> preliminary OS modification specification
> final UI/OOBE design
>- preliminary test plan
> Reference form factor available for review
> Develop names/positioning
> Field research to test: brands, target, price points, features, etc.
> Pick IHVs and begin scouting launch ISVs
August
> platform specification RC candidate
> DX8 graphics hardware spec complete
> preliminary title logo requirement
> OS modification specification complete
> final test plan
> documentation staffed ( + 1)
o sample consumer documentation
o ISV documentation
> Sales/Marketing team calls on 5 accounts; Toys R Us, Wal-Mart, Best Buy, Electronics Boutique and Comp USA.
September
> OS team 100% staffed
;,. final platform logo requirement specification
o includes platform specifications, form factor requirements, subjective factors
> complete demo system for external partners (OEMs)
> Alpha ISV SOK for Windows PCs (new APls, services on PCs) October
November
> preliminary documentation
> OS alpha1
> test development 100% staffed ( +5)
> Pick merchandising vendor
> Field research to test
> Pick IHVs and begin scouting launch ISVs
> final platform logo requirement
> includes test applications, license agreements, etc.
> Get Development systems out to first tier/launch ISVs
> Start heavy evangelizing to launch ISVs
January (2000)
> Platform prototype HW available to ISVs
> DX8 alpha
> OS alpha2
> Sales training - materials started - thru May
February
>- final title logo requirements
o includes license agreements, process description
March
> DX8 beta1, OS beta1
April
> launch title selection complete
> title qualification process started
> platform qualification process started
May
> test contractors 60% staffed
> First public display at E3, must have:
> Price point nailed down
> Mock hardware and software packaging
> Sales staff in place
> Merchandising units as prototypes
> At least 30 titles (in various stages of development) shown
>- Rough concepts of Ad campaign
June
> DX8, OS beta2
> Start early Buzz work through promo’s and sponsorships
July
> test contractors 100% staffed (+6)
> DX8, OS RTM
> launch titles logo’d
> platforms logo’d
> Print campaign starts
August
> Some TV teasers
September
> final hardware ready for manufacture
> launch mid-month for back to school
November
> Holiday promotions, new ad creative and new titles introduced.
Early Xbox architecture diagram.
Early July, 1999: The first meeting with Gates and Ballmer was a tough one. In part, it was awkward to go over the entire plan for Ballmer with Gates present. As Brown puts it, “We felt as if we were repeating ourselves, and you try not to repeat yourself with Bill because he remembers everything you’ve said.” And where they had ultimately sold Gates by emphasizing technology, Ballmer was all about the numbers—the financials and the business plan—and he quickly began asking the hard questions. “At that point, we had really been doing technology reviews and high-level bill of material analysis. All of us had enough knowledge to say we were in the right ballpark, but when you’re talking with Steve, you can’t be in the right ballpark. He wants the nickels and dimes. And I think that’s a great skill he has, actually, because he also saw what we were trying to do, but he needed the specifics. And so we had to come up with a lot of backing for numbers that we had that we hadn’t footnoted. That first meeting was weird because he ripped us a new one. We didn’t have the numbers.”
Brown also says, “When you go to a Bill review, you have ten slides and 50 pages of backup material. He asks a weird question and you say, ‘Here’s the short answer and page 37 has the backup.’ And then, while you go on with your slide deck, he’s turned to page 37 and he’s reading that and absorbing it while he listens to you. He can kind of triple multitask. We didn’t have any equivalently solid material to talk to Steve about. That was the mix of our team at that point. We didn’t have enough number heads on it. And so we quickly put together a lot of numbers.”
Ballmer was, in some ways, ahead of the xBox team when it came to the realities of OEMs, and he schooled them on the costs and margins associated with OEMs and their relationship with Windows. He knew the numbers down to the penny. By this time, the xBox team had more or less determined that Microsoft should make its own console, but Ballmer wanted to revisit the OEMs to see if anything could be worked out. According to Brown, “He said, ‘I’m going to call up Michael Dell, and we’re going to sit down and talk about if I actually spent $100 on a $95 purchase, whether that would make sense for him.’ Which is weird, but that’s how he thought about it, and he did understand the numbers at a deeper level.”
Ballmer challenged them to firm up their numbers and their business model, and they started looking at other sources of revenue. “We had to dredge through and get a lot more of that data and talk a lot more about subscriptions and alternate revenue methods. And we also had to get real concrete about how much it would cost to market and how much it would cost to buy exclusive titles, because, unlike a lot of people, Steve really knew that one. That really, intuitively, resonated with him. ‘What if you don’t have a good title?’ Because he knew that even a bad console, if it has a great title, it can really move a lot of units.”
According to Bachus, they turned to the head of the hardware division, Rick Thompson, for advice. Rick was a business guy and a hardware guy, and he ran the most profitable division, per employee, at Microsoft. They even asked if he was interested in running the project. He offered advice, but he didn’t volunteer to lead the project.
There was probably another meeting on July 14th, but I haven’t found any specific details about that meeting, and it was probably a follow-up to clarify issues raised by Ballmer.
Bill Meeting: July 20, 1999
Convincing Gates had been the goal of the various competitive groups for months now, and later in July they met yet again, this time in an even bigger group. Like every meeting before it, this was a go/no go situation, and once again, it was a go—meaning “keep working on it,” not “we’re prepared to pour billions into it…” not yet.
Rick Thompson remembers the meeting well, and for good reason. “In July 1999 there was a meeting with 13 vice presidents in it, believe it or not, and Bill and all the rest, where the Windows guys basically asked permission to go ahead and start working on this project. And Bill said, yeah. Go for it. And the last thing that Nat Brown did, over the telephone because he was conference called in (from Hawaii), was to say, ‘Hey, one last thing. We want Rick Thompson to run the project.’ And I turned bright red and just about exploded, and my comment was, “I already have a job. I have a job running the hardware organization.” But then, the next day, Steve Ballmer showed up in my office with a baseball bat in his hand, literally, and off I went to go work on the beginnings of the Xbox*. What he told me was that I could do both jobs. I could do the Xbox job, and I could do my hardware job.”
Bob McBreen had been running the toy division under Thompson, and when the orders came down, McBreen had just licensed the toy division to Fischer-Price, meaning that Microsoft was not going to be manufacturing toys anymore and McBreen was ready for something new. So when Thompson asked him what he knew about the Xbox, he answered, “I know nothing.” But after Thompson told him what it was about he said, “Ok. I’m in.”
So both Thompson and McBreen began working on the Xbox project even though they retained their previous titles and were technically in the same jobs they had been in before. According to McBreen, Human Resources was not involved. They just shifted jobs while other people handled most of their previous responsibilities. McBreen didn’t know if he would be working on the console project for a month or six months, or even if it would ever get made, but he started spending a lot of time on it.
There was one more “Bill” meeting to refine the ideas in September. (See ““Bill” Meeting: Sept 29, 1999” on page 343.) One more pitch deck before everything changed, and a new leader was chosen.
* Bill Gates did step down as CEO in January of 2000, but remained active as chairman until June 2008, when he left Microsoft to concentrate on philanthropy through the Bill and Melinda Gates Foundation.
* From here on, we’ll use this spelling for Xbox. All others became irrelevant at this point
