Xbox had a pretty good first year. Of course it didn’t even come close to being profitable, but nobody expected that it would be. What it did do is validate that Microsoft could create a console system that could compete in the market against the current leaders—Sony and Nintendo. No American manufacturer had been able to do that since the early days of Atari, Coleco and Mattel. 3DO was the last attempt by an American manufacturer to break the Japanese stranglehold on the console business, and it had failed, arguably due to a lack of good software more than by a failure in design or hardware.
And what Microsoft had that 3DO had lacked was software—notably Halo: Combat Evolved, which was a runaway hit. But there was more. Xbox had the Ethernet port that allowed players to link their boxes together, which was a big part of Halo’s success, and even before Xbox Live, was an advantage.
Because it proved itself, Xbox gained more third-party developers and its portfolio of games continued to grow. Before the first year ended, it was clear that Xbox was a marketing success. However, it was not an unqualified success. There were supply problems; they couldn’t manufacture enough units to meet demand. It failed in Japan and under-performed in Europe. It had to make quick adjustments to the controller. And despite the fact that there were new third-party developers coming on, Stuart Moulder points out that Xbox didn’t have a particularly strong Spring lineup, and their second holiday season was uninspiring, with the exception of Splinter Cell, which helped carry it through.
Fries Takes Third Party
After the multiple staggered launches of Xbox in the US, Europe and Japan, Ed Fries was settling in. His son, Xander (short for Alexander), who was born in March, shortly after the Japanese launch, was named after Xbox. Fries says that Bill Gates signed a Japanese Xbox for Xander on which he wrote, “Ed Junior’s First Toy.”
Soon afterward, Robbie Bach decided to switch the third-party operations to Fries, who was already in charge of first-party. The switch moved George Peckham’s group under Fries. “”So not only was I going around meeting with game developers, would work with our 1st-party team, but also meeting with all the big publishers.”
Part of Fries’ new challenges involved signing up companies to support Xbox Live, which was in development and expected to launch within the next year. One of their toughest negotiations was, not surprisingly, with Electronic Arts. “EA in particular were very slow to support Xbox Live; they had a lot of demands for their support of that platform. But they were the big guys, so…”
Part of what Fries faced by heading both 1st-party and 3rd-party was that he was simultaneously competing with the very companies with which he was negotiating. “It was a little controversial when Robbie decided to move 3rd-party under me. I think we were the only console that put 1st- and 3rd-party together under one person.” One area of potential contention with EA was in the sports franchises. EA was the leader in sports games, and didn’t much want competition, but as Fries notes, “We did have a sports division. Fortunately, it wasn’t good enough to really be too threatening. I think they were confident enough that they didn’t see us too much as a threat. But there were other places, say racing for example, where we were very much head-to-head competitors.”
The Strategic Plan
O’Rourke claims that the marketing strategy for Xbox was very well executed. “If you look at it through a marketing lens, the core tenets of any really successful marketing driven company, there’s brand at its very center and then a real strategic commitment to the messaging around the brand proposition. That’s what we did with Xbox from the very beginning. Where I think some other organizations struggle, everyone on the Xbox team had a shared understanding and shared vision of what the brand stood for.”
O’Rourke admits that, in addition to good strategy, there was also luck. “It was a combination of both brilliance and luck, but the brand attributes that we strived to create around Xbox mapped incredibly well to the target audience that we were going after. It differentiated us significantly from Nintendo and Sony.” Of course, Nintendo was sufficiently different in their branding and marketing strategy, O’Rourke says, that it was fairly easy to differentiate Xbox against them. “Sony was more challenging,” he says. “Sony had that macro brand. Sony stood for entertainment, and the PlayStation had been very successful.” For O’Rourke, the big differentiator was connectivity. We talked about what made us the next generation console, in particular being able to tell a story that it is more about connecting gamers, not just to the person next to them on the couch but to a person sitting on a couch across the city or across the state… it gave us a story and a brand position as an innovator that Sony was now having to respond to.”
What We’d Never Done Before
As only he can, J Allard looks back at what they had accomplished with Xbox and how much of the effort was brand new to all of them… how he saw the process in some ways as a family affair.
“look, the most complicated msft hw product was the mouse and we outsourced a ton of it. we had never sold product to or through walmart, target or best buy. we had never published a console game. we had never “certified” 3rd party products. we had never had billions in parts inventory. consumer branding? ha. we did product branding for productivity and some bled into the consumer, but never released a major product that was consumer first like this. we never had a million square foot manufacturing facility. the list goes on. we built a whole ton of new competencies. for all intents and purposes, it was a new company that had the full backing of microsoft. how could you say one thing was more important than the other? sure, manufacturing isn’t that glamorous to talk about, but what if we missed christmas or had assembly problems? retail seems easy now, but at the time everything we did was through oem’s and distributors. no wal-mart? no xbox. we had games from a lot of sources, but no 1st party hit exclusive to the platform (other than halo) then what would our p&l have looked like, 3rd party confidence? no support from EA, no madden? no gamers. i could go on forever. i appreciated every single part of the family we built and we couldn’t have succeeded without every single person on the team. there was no wasted energy - no room for it. who’s to say any was more important than the other? we love to tell stories with heroes, but this was a story of a family”
An Xbox team photo.
It took, a lot of brilliant, hardworking people to create Xbox, the project that was once thought to be a pipedream.