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Robert Delaware was the only named Microsoft worker (a contract employee) who talked — without permission — to VentureBeat for our story last week on the Xbox 360 defects.

Microsoft had him fired on Wednesday. Delaware worked as a game tester at Microsoft but was employed by the temp agency Excell Data. He reported directly to a Microsoft manager, who told him he was being let go because of the VentureBeat article.

Delaware, a 29-year-old Seattle resident, expects to face civil charges from his former employer VMC (which tests games for Microsoft) and Microsoft as well. He will likely have to hire a lawyer. Microsoft spokesman David Dennis said the company does not talk about personnel issues.

“I don’t regret it,” he said in a phone call on Thursday. “I’ll fight it. If they want to come after me, bring it on.”

Delaware bravely decided to come forward and talk on the record for our story about the many problems associated with the launch of the Xbox 360. He talked to me about how he learned about problems with the hardware while working as a game tester for VMC. He worked there from 2005 to the fall of 2007. He left to join a start-up, Whrrl, and then returned to the game testing job at Excell, working for Microsoft, this summer. During his time at VMC, he saw how Xbox Live updates embedded in retail games could turn working consoles into worthless hulks. I found his remarks to be refreshing and candid.

He later moved to work for Microsoft, testing games for its Bungie studio. Clearly, from a legalistic point of view, Delaware broke company policy and it is the company’s right to fire him (he fully knew the risk he was taking, based on multiple conversations I had with him about using his name).

But this kind of witch hunt mentality is wrong-headed. People like Delaware are more useful hunting down bugs and fixing problems. I think the company really should apply their energy in different directions, like making sure that consumers are treated right. The firing disappoints me, and I wish Delaware well.

Delaware said he got some positive feedback at work about the story. On Friday, he believed a couple of people were arguing about his involvement in our story. But nothing happened until Wednesday, when he talked with his boss and communicated with an HR rep for Excell Data on the phone. The HR rep was the one who told him that he would likely face legal trouble.

When I was thinking about making a difference with our story, this isn’t what I had in mind. But there has been a lot of feedback on my story from angry consumers. Asked if I should write a story about this firing, Delaware said, “Rock and roll. It feels good. It was the moral thing to do.”

Updates on other fallout from our story

Tom Prettyman, a 24-year-old network administrator in Hamilton, N.J., wrote in to tell me that he has gone through 11 failed consoles. The first one broke three days after he bought it in November, 2006. It happened so many times that he bought the extra $60 warranties to get the machines replaced for free early on.

“I want to thank you for writing about this,” he wrote. “Especially in this day and age when investigative journalism seems to have become a thing of the past”

Prettyman wasn’t aware that there was another guy, Justin Lowe, a 22-year-old student in Pembroke Pines, Fla., who also had 11 broken consoles. His twelfth console, sent to him by the advertising team at Microsoft for free, has problems reading game disks.

A few people really didn’t want to hear about the defect problems again. But I heard from a lot of people who believed passionately that telling the story was the right thing to do.

Rob Cassingham, who had seven consoles break on him (as we noted in the story), wrote in from Moab, Utah, to tell us that he has now had eight break on him.

Jason Miskimins alerted us to a problem that results in a console failure but apparently does not lead to the Red Ring of Death problem for which Microsoft will offer free replacements. Miskimins says this “black screen of death” problem isn’t covered by the warranty and Microsoft charges for fixing the problem.

The story has spread pretty far. A writer in Poland asked if it was OK to translate it into Polish.

When his fourth Xbox 360 video game console died in April, Chris Szarek wasn’t surprised.

The Chicopee, Mass. gamer was accustomed to the hardware failures that became known throughout the Internet as RROD, or the “red rings of death” which flash when the console becomes inoperable.

A 40-year-old photographer, Szarek was a hardcore Microsoft fan who spent more than $1,000 on his games. But each time one of his Xbox 360 consoles failed, he had to spend time convincing Microsoft’s tech support that they should send him a new console. Each time he got a refurbished console as a replacement (a machine that had been returned to a repair center in Texas, fixed as much as possible, and then shipped back out). When he complained on the Internet and to the media about the shoddy product and poor customer service, people branded him a cry baby and wrote him off as a statistical anomaly. But by the spring of 2008, Szarek was vindicated. There were at least a million or two other people like him.

Szarek’s fourth machine lasted almost two years, experiencing the same short life that many other Xbox 360s suffered. Microsoft replaced these machines for free under the warranty that it announced on July 5, 2007, for defective Xbox 360s exhibiting what it more politely called the “three flashing red lights.” That warranty program cost Microsoft up to $1.15 billion, but the loss of face and loyalty among gamers in the fierce console war with Nintendo and Sony has been immeasurable. Szarek, who became a spokesman for dispossessed defective Xbox 360 owners, played a part in making Microsoft acknowledge its console quality problem.

This is the unauthorized tale of how Microsoft lost its chance to become the leader in the biggest market it has attacked beyond its twin monopolies in Office and Windows software. Rival game console maker Nintendo out-thought the larger players Microsoft and Sony by designing the Wii game console with a clever, intuitive game controller. Even so, Microsoft could have captured more gamers during this product generation, yet the RROD problem held it back. The Xbox 360’s defect problem will go down as one of the worst snafus in consumer electronics history.

Its own worst enemy

Microsoft knew it had flawed machines, but it did not delay its launch because it believed the quality problems would subside over time. With each new machine, the company figured it would ride the “learning curve,” or continuously improve its production. Even though Microsoft’s leaders knew their quality wasn’t top notch, they did not ensure that resources were in place to handle returns and quickly debug bad consoles. There were plenty of warning signs, but the company chose to ignore them. The different parts of the business weren’t aligned.

It reminds me of the German war machine just before World War I, as chronicled by Barbara Tuchman in the classic history book, “The Guns of August.” The German generals were intent on keeping their trains on time; but the leaders overlooked their chances for stopping the war altogether. The Schlieffen plan called for them to strike first. Once the Russians and French mobilized, the Germans had to move into action. They marched off blindly into tragedy.

Likewise, Microsoft’s strategy depended on beating its rivals to market. It couldn’t afford to stop and delay the launch in order to solve its quality problems, or so upper management believed. What Microsoft’s leaders didn’t realize was that getting to market first with a flawed machine would only win them a battle; and it risked the loss of the war.

“They got enamored with the idea of the Microsoft army rolling everything out at the same time,” said one knowledgeable source who asked not to be identified.

The quality problem negated much of the advantage of going first, and it has delayed the company’s plan to aggressively market the console and slash its prices. (Microsoft disputes this point; it cut the price of all three versions of its Xbox consoles by $50 to $79 on Wednesday. And the company believes it will sell more boxes than Sony will. But prices ought to be lower still during this stage of the console life cycle). That has stopped the company from reaching the broader market of consumers that Nintendo has won over. It has lowered its ambitions, hoping instead just to get a clear edge on third-placed Sony. The future profits that the company once hoped for are now likely to wind up in Nintendo’s pockets.

Microsoft’s top game executive, Robbie Bach, president of the Entertainment & Devices group, said at a dinner in July that Microsoft’s own research shows that gamers have largely forgiven the company for defective Xbox 360s. Microsoft has still sold more Xbox 360 consoles than Sony to date. But there is no doubt that the company has lost considerable good will among gamers. Before Microsoft offered free replacements, connsumers grumbled that they had to turn to forums, such as those on Ars Technica, to vent and to find solutions to problems that the company didn’t openly discuss. And for a couple of months now, Sony’s PlayStation 3 has been outselling the Xbox 360 in the U.S. for the first time.

“Fundamentally, their thinking shows that they are a software company at heart,” said one veteran manufacturing executive. “They put something out and figure they can fix it with the next patch or come up with a bug fix.”

The terrifying part of the story is that this kind of problem — where technology fails and no one knows what to do about it — can happen to any company.

About this story

I asked Microsoft to confirm or deny 35 different facts contained in this story. Instead, I received a formal statement from a Microsoft spokesperson, saying the company had already acknowledged an “unacceptable number of repairs” to Xbox 360 consoles and responded to the hardware failures with a free replacement program. The statement also said, “This topic has already been covered extensively in the media. This new story repeats old information, and contains rumors and innuendo from anonymous sources, attempting to create a new sensational angle, and is highly irresponsible.”

I don’t think this story is sensational. I have tried to verify the facts over several years. I view this story as the last chapter for my book on the making of the Xbox 360, “The Xbox 360 Uncloaked: The Real Story Behind Microsoft’s Next-Generation Video Game Console.”

The facts revealed themselves slowly, emerging from the day-to-day stories that I wrote about the game business. Some people might consider this post mortem to be ancient history. But the reverberations are still playing out today. They help explain why Microsoft isn’t being aggressive with its price cuts and why gamers aren’t getting bargains on hardware as they did the last generation. While I talked to many people for this story, few were willing to let me use their names. As you will see, not every source is anonymous, and we have included the viewpoint of Microsoft executives from past interviews.

The details are interesting because they offer a deeper look into how the console business runs than is otherwise available. Microsoft, for instance, still hasn’t perfected its Xbox 360 manufacturing process. In the absence of a precise chronology from Microsoft, some anonymous sources have tried to describe what happened. But the history of the decision making and inside story of what happened on the RROD has never been told, until now.

Capturing motion is a technology perfected for movie special effects and video games. It makes it a lot easier to create a computer-generated character if the artist has access to real-world character movement. Organic Motion has done well selling motion-capture systems for such purposes.

But today it’s about to embark on a promising new market in retail sales. The New York company is announcing that Swiss high-performance bike maker BMC will use Organic Motion’s technology to capture the movements of customers so that it better customizes its bikes for each person.

The deal will likely result in the deployment of a lot of systems — which include 10 high-speed cameras and cost about $80,000 — since BMC has more than 250 dealer locations in the U.S.

“We think this is the biggest deal in the history of our industry,” said Andrew Tschesnok, chief executive of Organic Motion. “It helps them fit a bike to a specific rider and they can do this in any store.”

The product is the brainchild of Tschesnok, who started developing it five years ago but formally incorporated the company in 2006. While other motion-capture technologies use markers such as fluorescent balls attached to body suits or light-sensitive make-up to capture motion data, Organic Motion uses no markers at all. Rather, it uses multiple cameras and software that can stitch together a 3-D view of an object to get motion accuracy down to a few millimeters.

“We really changed the cost equation,” said Tschesnok. “You don’t have to put on a body suit. Anybody can jump in and be measured. So it can move from research to general practice. It goes from entertainment content creation to the retail market.”

The opportunities in retail are big. You could swing a golf club and an untrained clerk could recommend the club that is just right for you, Tschesnok said.

Competitors use traditional motion-capture suits and markers to capture images.  Mova and Image Metrics can do facial capture. In the low-cost consumer product realm, where Organic Motion doesn’t play, companies such as 3DV Systems are capturing data for motion-controlled video games. But the data isn’t as accurate as Organic Motion’s. Motion Analysis is a leader in motion capture.