How Xbox 360 changed everything

Back in 2004, Xbox VP Peter Moore spent two days pretending to be PlayStation CEO Ken Kutaragi.

During the planning stages of Xbox 360, Moore (who now works at EA) and his fellow Microsoft employees – including former Xbox president Robbie Bach and chief technology officer J Allard – had hired a consultant to put together a role-playing ‘simulation’.

Everybody was playing a different role, some of us were Sony, there were people who were Nintendo, third-party publishers, Microsoft, and so on,” Bach says.

We went through that simulation and learnt a lot. We came out concerned that PlayStation was going to be more powerful and the performance difference was going to be too high. So we added things to Xbox 360 to make it better. We also put a lot of emphasis on games, irrespective of whether Microsoft produced them or a third-party company did. In the simulation, those were the two things that proved to be the key parameters that determined whether the game was won or lost.

The changes we made as a result turned out to be crucial.”

The simulation was part of a desire from Microsoft to fix the myriad of issues it faced with its original Xbox.

The first Xbox was quite successful in some ways,” remembers Bach. Some markets, including the UK, had about 20 to 25 per cent market share, which was pretty good for a first time console. But financially it was not good at all and the company lost a lot of money.”

Moore adds: People forget that the Xbox, the big black original one, did ok, but it didn’t exactly strike fear into the hearts of Sony, Sega or Nintendo. What we needed was to explode out of the blocks, to create something that got ahead of the competition, that felt very superior, that had great content, but broader than that, to build community.”

Bach continues: The original Xbox was not designed as thoughtfully as it should have been. It wasn’t designed to be cost reduced. We ended up chasing Sony on the price curve, and the costs were very high and it lost the company a lot of money.

The first Xbox was also not a thing of beauty. It was big and black and had these funny vents on the side, and the world’s largest game controller. With Xbox 360, we wanted a sleeker look, we wanted it smaller, we made it white so it could be the real opposite of the first Xbox.”

We also had a funny approach of how to launch the first Xbox. We really focused everything on that first Christmas in 2001. We tried to get as many publishers as possible to ship games, we had something like 20 games at launch, which was a lot. But unfortunately not many of those games made money, and it was almost 12 months before we had any more good games.

What we did with Xbox 360, is that we said our launch is the first two holidays, and not just the first holiday. That literally meant we told publishers to hold titles back. Which was fortuitous, because we had a pretty good line-up when Sony launched PlayStation 3 a year after we did.

Finally, we concluded that console pricing mattered a lot. That’s not rocket science, but with the original Xbox we thought we could sell it at a premium compared with PS2. So with 360, we said: People will pay extra for high quality games, but not consoles.” So we had to make
sure that everything that’s in there is valued, useful and important. And everything that is not, don’t include it. That is why we didn’t do Blu-ray discs.”

The first Xbox wasn’t a complete failure. There were a couple of successes that Bach wanted to transfer across to 360. Basically,” he says. Halo and Xbox Live.”

Moore remembers: We were going to charge for Xbox Live when our competition was free with the belief that we could take that revenue and reinvest in features, and back-end infrastructure, and constantly updating the system to get where Xbox Live is today.

I can tell you, there was a lot of blood, sweat and tears going along the way, and a lot of learning about churn and attrition and keeping massive networks up around the world and global billing systems and customer service. It was a tonne of work, of which there was no template and no blueprint that we could call upon.”

Bach continues: Xbox Live was the social network before MySpace and Facebook existed. The things you do on there, voice, communication, friends list, play games with others, share things… all of the things you do on Xbox Live started in 2002. If you think of it in that context, it is quite a revolutionary thing. It changed the games industry.”

I infamously said: ‘First to a 10m install base wins’. You look back over the ten years, and see Xbox 360 did very well.”

Peter Moore

During that role-playing simulation from 2004, Xbox’s management team discovered that Sony would likely be working hard to win over Activision, EA and Ubisoft. So Bach and Moore went on a charm offensive of their own.

One of the great things was the content we finally managed to get on the box – Grand Theft Auto was one of those moments, people today forget that that was a PlayStation exclusive,” says Moore. And the work we did with Activision on Call of Duty, and getting Infinity Ward and Treyarch closely tied-in with Xbox 360.”

Bach adds: There were a number of targeted titles that we pinpointed, which we said were the places where we needed to make things work. If you look over the lifecycle, Xbox had a content advantage.”

Xbox 360 came out a year before PS3, it had a stronger line-up and a cheaper price (When we knew they were going to be $100 more expensive than we were… We knew we were in a strong position,” says Bach). But Xbox still had a perception problem. It was viewed as a platform for real hardcore gamers, and the association with Microsoft was not proving to be a strength.

So in early 2003, Bach recruited Peter Moore – who had experience at Sega with the Dreamcast – to lead the firm’s marketing.

There was an unspoken philosophical relationship between the Dreamcast and Xbox, as regards online and building out communities,” Moore says. I met with [former Microsoft boss] Steve Ballmer and we talked about what I had gone through with Dreamcast, and some of the challenges that I foresaw Microsoft would face.”

It wasn’t long before Moore was working on 360’s launch strategy.

I sat down with Robbie and Bill Gates and said: ‘We are just not going to see Microsoft as part of this’. We kind of buried the Microsoft name, it’s somewhere at the back of the box,” Moore says. We wanted to give a consumer-friendly face to Microsoft via Xbox.”

Moore also wanted to make Xbox appeal to a broader market, and in May 2005 he teamed up with MTV to announce the 360 with a star-studded show.

We had Snow Patrol, Kasabian, The Killers, Fatboy Slim, we made it a celebration primarily of gaming, but it was also a broader entertainment play,” Moore says. We needed to be part of the living room, and we knew we needed to get permission from mums, wives and girlfriends that this thing belonged in the living room.”

Bach adds: The industry had a bit of a perception of being