Enter the Console Market with Xbox

Setting

Sony's PlayStation 2 is dominating. Microsoft fears that the game console will become the "hub" of the digital home, pushing the PC out. A small group of rebels (the DirectX team) proposes building a game console based on PC architecture.

People

• Responsible: Robbie Bach, Seamus Blackley
• Approvers: Bill Gates, Steve Ballmer
• Consulted:
• Informed:

Alternatives

Option A: Stay Pure Software (Make games for PC/PS2)

Pros:

• High margin.
• No hardware risk.

Cons:

• Sony controls the living room.
• PC gaming might die if consoles take over.

Option B: Build the Xbox (Hardware)

Pros:

• Strategic defense of the Windows platform (DirectX).
• Potential to own the living room.

Cons:

• Microsoft has never built complex consumer hardware.
• The business model is "Razor and Blade" (lose money on hardware, make it back on games). Microsoft is used to making money on everything.
• Predicted loss of billions of dollars in the first few years.

Decision

Chosen: Option B

Rationale: In a famous meeting, Bill Gates initially hated the idea (it didn't run full Windows). But when told "Sony will win the living room," he approved it. It was a strategic defensive move.

Consequences

Positive

• +Xbox became the only successful new American console.
• +Created Halo (a massive cultural franchise).
• +Established Microsoft as a consumer hardware maker (paving way for Surface).

Negative

• −Lost billions of dollars for years.
• −The "Red Ring of Death" disaster (costing $1B+ to fix).