Some lessons become clear over time.
At our GamesBeat Summit 2016 event, that was evident in our opening fireside chat with Robbie Bach, former chief Xbox officer at Microsoft and author of the recent Xbox Revisited, a memoir of his time at Microsoft as well as his strategy for fixing our country’s problems.
Bach ran the Xbox group from the beginning at the dawn of the new millennium until 2010, or five years into the Xbox 360 console. He was ultimately responsible for the business, and it was a roller-coaster ride. The first Xbox was a consumer success, and it ushered in Microsoft’s best video game franchise, Halo. But the console lost $5 billion to $7 billion in its first four years. And Bach almost quit his job after a disastrous first revelation of the original Xbox at the Electronic Entertainment Expo. His boss wouldn’t accept the resignation.
Bach made a lot of the important decisions, and he gets some of the credit for turning around Xbox and making billions of dollars with the it successor, the Xbox 360. More than any other console, the Xbox 360 helped Microsoft close the gap with its competitors. But Bach said his job often felt like he was always putting out fires on his desk. He stamped out the ones that were burning brightest, he said, only to return the next day knowing that new fires had broken out.
The Xbox 360 was enormously popular with consumers, but it was afflicted at the outset from the “Red Rings of Death,” a defect problem that I have written tens of thousands of words about. Microsoft had to recall a bunch of bad machines at a cost of $1.15 billion. But the Xbox 360 went on to gain market share, and it may have represented Microsoft’s peak in the video game business.
Watching from afar, Bach saw the 2013 launch of the Xbox One, which has sold 20 million units by some estimates. But it has fallen significantly behind the PlayStation 4 in worldwide sales, which are nearing 40 million. That’s not a great scorecard, but Microsoft has been able to make money on those hardware sales, and it has far outsold Nintendo’s Wii U.
Now Bach is an advocate for “civic engineering,” or using bipartisan cooperation to rebuild our country. We talked with Bach about the lessons of those years in a fireside chat at GamesBeat Summit 2016. Here’s an edited transcript of our conversation.
GamesBeat: You served as chief Xbox officer for a decade. You were there at the beginning and went through about two-and-a-half console launches.
Robbie Bach: Really just two. I wasn’t around for much of Xbox One.
GamesBeat: You started as the ultimate underdog inside Microsoft, the biggest of companies, with a new hardware business. The Xbox has been a success over 15 years and you recently wrote a book, Xbox Revisited, looking back on a decade-plus of the console. You were very honest about the hardships you faced, including when you wrote a full resignation letter after the first E3.
Bach: After that E3 I did more than write it. I submitted it. For those of you who remember E3 2001, that was not our best moment. Highlighted by a pirate ship running ashore on the rocks. That was the metaphor we developed.
GamesBeat: That was when you pushed the power button and the console didn’t turn on.
Bach: It didn’t turn on, yeah. Another metaphor. The bad thing is, given I’m a Microsoft guy, you’d think I would at least get a blue screen. I didn’t get anything. Just this black TV screen. That was a tough period.
GamesBeat: You have a lot of perspective now and I’d like to hear some more of it. You said that the first four years led to losses of $5-7 billion. Then the 360 generation came.
Bach: The amazing thing is they didn’t fire me after that. Most guys would get shot.
GamesBeat: They had a long-term view.
Bach: I guess!
GamesBeat: The Xbox 360 comes along and lasts a decade. Now we have Xbox One, and Microsoft is in second place, but not doing badly. What’s your summary of this?
Bach: In some ways it’s the way many things work. The beginning is really painful. We were an underdog and we were not very good at what we were doing. We didn’t know what we were supposed to be doing. We had a lot of smart individuals, an all-star team of talent, but not a team. The first Xbox, we were lucky to get the product done. I’ve been involved in startups since, just advising, and being a startup is tough. It doesn’t matter if you’re inside Microsoft or on your own. That startup phase is crazy and you have to find a way to persevere.
That team got past the first launch, got into selling the product, and started working on Xbox 360. We became a team through that process. That’s what changed things, when we went from being smart individuals to being a working team.
GamesBeat: Survival is the first task.
Bach: That first period was just about survival. We fought every day. I felt like I was coming in and it wasn’t a question of strategy or the big pieces we were moving around. It was, “What’s the fire burning hottest on my desk today?” I know I’m going to put it out today and come back tomorrow to find it burning again. We did that for 18 months.
Truth be told, October 1 I didn’t know if we would have consoles on shelves on November 15. That tells you how hard the team had to fight, what we had to do to get things done, and how close a shave it was in terms of getting to the level of success we did. We found good market share, but it was horrible financially.
GamesBeat: The Xbox 360 turned out better.
Bach: Here’s the thing. When you go through these challenges, when you’re David versus Goliath, the biggest thing is to learn. You’ll get pummeled a bit. You have to figure out how to learn. The one thing that team did incredibly well was we learned. We found out things that we did that were wrong. We made mistakes and fixed them. We figured out what we could do better. We understood the dynamics of the industry.
Some of that learning was applied in the original Xbox itself, but a whole bunch more got applied to Xbox 360. In many ways Xbox 360 couldn’t have happened without Xbox. We wouldn’t have learned the lessons we did. By the time we got pretty far into the Xbox 360 process, it’s not that we were confident. We still felt like underdogs. But we no longer felt like we were getting hit every day.
GamesBeat: Then you got the Red Rings of Death.
Bach: It’s not comfortable for me to talk about it. I wrote about it extensively in the book. The Red Ring just proved my point. We had something happen to us with a good product that was performing incredibly well in the marketplace. We started getting customer complaints. If your Xbox came back with three red lights, that was what we called a general error message. It was the 360’s way of saying “I’ll never work again. Thank you.” And that’s all it told us.
We had no idea what was wrong. We didn’t know if it was bad cards, bad manufacturing, a bad lot, some design flaw.
GamesBeat: All the error code stuff meant nothing?
Bach: The error code we got was just a general hardware failure. The code didn’t tell us much. So now we started doing diagnostics. We hired physicists. We had people come in from universities, from the chipset manufacturers. We worked hard to figure it out.
I learned two important lessons from that exercise. The first one is, no matter what happens, you take care of your customers. When we made the decision to write off a billion dollars, the largest writeoff in Microsoft history to that point, to make good on these consoles and make them work – send it back and we’ll fix it – customer response showed some frustration for sure, but really they just wanted their Xbox 360 back. They wanted to keep playing. Our customer satisfaction numbers never went down during that period. Sales did slow down, honestly.
The second thing I learned is that in these kinds of businesses you have to be persistent. You have to persevere. The team that dealt with that problem was about perseverance. The hardware team went at it really hard. The operations team—basically we created an entire new supply chain to send you a carton overnight, have you overnight it back to us, have us fix it, put your old hard drive in the new console, put it back in an overnight carton, and ship it to you. And we did that more than once for a number of customers. The team put that together in about a week. We weren’t going to let problems beat us.
If you’re an underdog, that’s the attitude you have to have. Nothing can get us down. We have a good product. We have customers who like it. Let’s go after it.
GamesBeat: Why didn’t that kill you guys?
Bach: Like I said, we took care of our customers. We said we’ll fix it. If you have to send it back twice, we’ll fix it. We had people return them three or four times. And people really did like the product. If that had happened on the original Xbox, we would have been dead. The original Xbox, nobody loved the console. They like Halo and Xbox Live, but the console was this big black thing that looked like a radiator and had the world’s largest game controller. It wasn’t something people were in love with.
The Xbox 360, people genuinely liked the product. If you have a product that people like and you treat your customers well, they’ll give you some grace. They’ll give you some lenience because you’re trying to make it right. If you make it right, they’ll move forward with you. That’s what happened.
GamesBeat: Now we have this new generation of platforms launching. Do you have some lessons for the VR and AR folks? Or Microsoft with HoloLens?
Bach: This is going to sound obvious, but everybody forgets it. All of these things are about the experience. None of it’s about the technology. If the experience is you spend a lot of money, look goofy, have 15 cool minutes, and then not have anything after that, it’s going to be a hot fad and things won’t go anywhere.
If the experience is we figure out how to get the price to a point where it’s palatable to a broad base of people, if there’s content from outside the gaming space as well as inside, if people really value it because they have fun for the first 10 months instead of the first 10 minutes—if you can get that experience right, it can be a huge thing in gaming. But it’s entirely unclear today whether people are going to get that experience right.
That’s not a knock on anybody. We’re just at a stage where things are unclear. The hardware is expensive. It looks a little weird. You have to have a couple of different machines. The average person doesn’t understand the things they have to do to have a good VR experience. It’s not straightforward enough. Hardcore gamers will get it and that’s fine, but if you want to get beyond that audience, the experience has to improve dramatically.
I don’t think it’ll happen this year or next year. It’s two or three years out. But when we get there, there’s real meat there. There’s real opportunity.
GamesBeat: How far do you think some of these big companies should reach on platforms like this? You can be in PC games, in consoles, in portables, in smartphones and tablets. We have VR and AR now. Maybe Activision Blizzard or Tencent might be big enough to do all of these things. What would you suggest to them?
Bach: In the book I wrote a lot about this thing I call purpose, which is understanding what your north star is for what you’re trying to create. Every company in the industry has to decide what’s the purpose they’re trying to achieve. If you’re at Activision at some level your purpose is to take the brands you have and drive them everywhere, to figure out how to take the value you have in brands and IP and make it visible in lots of places. You want to be in esports, in mobile, in VR, in lots of places. Your value add is the IP itself.
For a lot of other players, they have a specific skill set. Maybe it’s social or mobile. The cool thing is you don’t have to be in every platform. Each of these platforms by themselves is now a big business. Mobile is a big business. PC and console are big businesses. VR and AR are going to become a big business. We’ll have a lot of places to make money.
The thing you just can’t do is spread yourself too thin. You can’t say, “VR’s the hot thing so I have to do that.” If you’re good at mobile games, drive mobile games, because there’s a lot of business there. If you’re good at console games, drive your business there. If you’re a startup looking to do something new, AR and VR is a good place to go explore.
GamesBeat: You don’t really have a stake in the platform wars anymore. What’s your outsider’s perspective on some of this?
Bach: It’s funny. I’ve been gone long enough that I don’t say “we” or “I” when I’m referring to Microsoft anymore. It took me about two and a half years to stop that. The thing I think is so exciting is that it’s no longer just a console space. There’s no single point of failure. People said the console business was dying three years ago. That turned out to be wrong, and even if it was right, the game business would have been fine. It would have changed. Some people would have suffered and others would have benefited. But there still would have been a games business.
To me, the exciting thing looking from the outside is how little I know about so much of the business. I know the console business really well. I follow the mobile business, but I don’t completely understand it. I follow the PC gaming business, but I’m not an expert. That’s cool, to me. It says that a lot of things can happen.
The industry has probably never been healthier. I’m sure there are pockets that aren’t, companies that aren’t. The winners and losers change every year. Microsoft isn’t losing this generation, but not winning either. That’s always going to be the case. But the industry itself is as healthy as it’s ever been. Probably more so.
GamesBeat: The second half of your book is where you do have a dog in the fight. This is civic engineering. Can you tell us about that?
Bach: The book takes the Xbox story from start to finish and talks about a strategy framework we developed to create Xbox 360, which I now call the 3P framework. It says that if you’re going to have a strategy, you have to use three pages to write a purpose, five principles, and five priorities. Nothing complicated. I can do it in three Powerpoint slides for any business. If I can’t the business doesn’t understand what it’s trying to accomplish. I explain that through the lens of Xbox and Xbox 360.
Civic engineering is applying those same principles to what’s going on in our communities and our civic organizations. As healthy as the games industry is and will be through the coming years, our communities are incredibly unhealthy right now. If you watch what’s going on in the political races, regardless of who your candidate is, the underlying theme I see is a lot of angry and disenfranchised people. That’s a crisis in our country. When you tell me that every year, 25 percent of kids in high schools are not going to graduate, you now have 25 percent more who are disenfranchised and unhappy. That creates an environment that’s untenable in the longer term.
The book is about thinking through how you would take that 3P framework and apply it to questions like education, immigration, budget, or taxes. Things that change communities. In Seattle, how do we fix the transportation system? All of those types of things that are core civic issues that need to be addressed.
The reason I’m so passionate about this is because I don’t think it’s government’s job to fix it. They’re a player in it. But everyone in this room has an important role, either through the work you do with non-profit civic organizations yourself, or through the work your business does in the community in which you work. If you don’t think that’s important — if you don’t think being civically engaged as a company in your community is important – I would posit that you’re missing the boat. That will come back to bite you at some point. That’s the premise for the book. It’s what I spend a lot of time talking about and consulting with when I travel around the country.
GamesBeat: I wonder if Donald Trump has read it.
Bach: Probably not. I’m not a Trump fan at all. In fact I just wrote a blog I posted this week that was sort of about that. But the thing the Trump phenomenon and the Bernie phenomenon point out is the fact that people are unhappy. They’re dissatisfied and disenfranchised enough that they’ll listen to someone who shouts loud enough, “I’ll help you,” even if they don’t have a plan behind it. Our job as what I call the silent majority is to fix that. We can blame Washington all we want, but these are our communities and we have to fix them.
I’m sorry if this isn’t exactly what you came to hear at GamesBeat, but it’s what I think is important. It’s important to you and the businesses you run and the communities to live in to think about how you’re re-engaging. Particularly, for this audience, think about education and what you’re doing. You talked earlier about diversity. Think about that in the context of education and what we can do to change the path of our communities if we get engaged on that front.
Question: If you could have done one thing differently, what would that have been?
Bach: In the context of Xbox, it would have been to focus on team and culture much sooner than I did. We had real strategy problems, real business problems, technology, all that stuff. If we’d had a team with a consistent culture we would have fixed those much sooner.
It’s easy to get caught up in the technical problems. Remember that most problems get solved by the team, not just by some idea. If you get the team right the problems go away. It’s pretty magical that way.
GamesBeat: When you say there was a team problem, what do you mean?
Bach: When we hired the team we started with 20 people. We shipped Xbox with a bit more than 2,000. We added 2,000 people in 18 months. We added people from Microsoft’s systems group. It’s a different culture. We added people from Office who hated the systems people. Then we added people from the hardware group who made mice and keyboards. We added people from the gaming industry who were nominally somewhat crazy. We had the United Nations. I was Kofi Annan. It ran about as well as the United Nations usually does.
What I would have done sooner is stop that game of musical chairs. We’re going to agree on some core principles. We’ll decide how we run the business at a technical level, at a decision-making level. That would have dramatically changed Xbox.