The Four Musketeers

At Microsoft, fear also bubbled up from the bottom. The four ringleaders identified by Microsoft as the founders of the Xbox were Kevin Bachus, Seamus Blackley (pictured right), Otto Berkes and Ted Hase. They banded together to push the idea of a Microsoft game console based on its DirectX technology as a counter to Sony’s planned PlayStation 2.

Hase was a developer relations evangelist, and Berkes was a one of the most respected computer graphics experts in the DirectX group. Berkes wanted to create a version of the PC that could be tailored to run games and be built inexpensively. They wanted a machine that made content creation easy.

The loudest of the group was Blackley, a former physicist and the creator of Trespasser, one of the great failures of the game industry. It was a dinosaur game, made for Steven Spielberg’s DreamWorks game division, that promised great things such as physics-based game play. But the game chewed up a huge budget and crashed and burned when it came out. As his personal penance, Blackley took a job at Microsoft after that, hiding out and working on high-end graphics in obscurity. However, he had earned himself a great life experience: how to take risks and bounce back from failure.

Bachus was an evangelist for DirectX. He had worked at a game publisher and joined the DirectX team, just as St. John got fired. He had an encyclopedic grasp of games and became Blackley’s Microsoft sidekick. As the PS 2 worries spread, the musketeers decided to create their own console, based on DirectX. The secret, politically incorrect code name was Midway, cleverly named after the World War II battle where the Americans finally kicked the asses of the Japanese.

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“The PS 2 was a huge motivator,” Hase said. “But we saw the PC as a creativity platform that could be made economically more attractive.”

Bachus and Blackley wanted a machine that met the needs of game developers, who had always had hardware shoved down their throats. Early on, Bachus sought to bring a sense of “empathy and responsiveness” to Microsoft’s approach. In the past, every Microsoft effort in the game industry had failed because of a failure to listen to customers or partners. Bachus came from the game industry and could understand the complaints that game creators had about game platforms.

Their earliest documented meeting was on March 30, 1999 (28 days after the PS 2 announcement), in conference room No. 2095 of Building 5 on the sprawling Microsoft campus. There were Jelly Bellies, and Blackley kept picking out the red ones to eat. They brainstormed things such as how to get a PC to boot extremely fast, a project they would undertake as a demo to wow Bill Gates. Berkes recruited Colin McCartney and Drew Bliss to create such a demo.

Microsoft needed a real reason to attract game developers. It had the PC game market, but that wasn’t so alluring to a lot of developers, who saw it as a shovelware market, where publishers dumped a lot of second-rate titles and piracy was a big problem. Blackley, Bachus, and others saw a chance to appeal to the creative side of game development. They would clear the business obstacles out of the way so that game designers could be artists. As with other art forms, games were going beyond their beginnings. They wanted to make games cool, not nerdy. It was a mission to gain both business and cultural acceptance.

“We gave a lot of time to talking about that,” Blackley said. “It was part of a larger trend that made games acceptable and respectable in the larger, broader audiences. In that respect, we were trying to do good.”

Berkes saw this new game machine as a “PC imbued with the attributes of a console.” Inside Microsoft, they embraced the Japanese concept of “ringi,” or getting a consensus among colleagues without sacrificing the power of the original idea. They recruited Nat Brown, a seasoned Windows manager who regularly ate lunch with Bill Gates’ assistant. Berkes said Brown came up with the name Xbox, though he didn’t stay for a long time on the project and others didn’t remember who exactly had named the machine.

Blackley recruited his buddy Rob Wyatt, a graphics expert who had worked on the Trespasser game. Nvidia’s Dave Kirk was one of the first outsiders to hear about the machine, which would require a screaming fast graphics chip — the kind of thing that Nvidia made. Intel’s Jason Rubinstein, a game evangelist, and Ned Finkle of chip maker Advanced Micro Devices, also got wind of the plans.

Luckily, Microsoft had a hardware group with engineers who were skilled at making computer mice, joysticks, keyboards and other peripherals. Gates let the hardware division survive within the software giant because it made money. Rick Thompson, a tough New Yorker, ran the business on razor-thin margins, always aware that it would be shut down if it lost money. He was brought into the Xbox discussions, as his group might be tasked with building a console, if Microsoft chose to go it alone without hardware partners.

Microsoft had also acquired a large hardware engineering team in Silicon Valley when it purchased WebTV for $425 million. The acquisition gave Microsoft its first real hardware appliance for the home, a stripped-down computer meant for browsing the web on a dial-up modem. Craig Mundie, a Microsoft executive who was responsible for the acquisition, had the ear of Gates and wanted WebTV to lead the game console effort. Many WebTV veterans had worked at 3DO, and they favored the console approach.

But the four musketeers saw things differently. Berkes and Hase in particular saw the strengths of the PC. You could change the hardware and upgrade software for it every year. It used cheap, off-the-shelf parts made by the tens of millions. It had a much easier architecture and programming model than the proprietary game consoles. The musketeers didn’t see eye-to-eye with the WebTV crew, which wanted to start from an appliance and move upward into a console. Instead, they wanted to start with a PC and move down from there.

They gathered their allies along the way. Ed Fries, the head of Microsoft Game Studios, turned out to be the fifth musketeer. The business wouldn’t have gotten off the ground at all if he hadn’t believed in it. After all, someone had to make games for the machine, and Fries was the one who held the purse strings for making PC games at Microsoft.

Fries joined Microsoft as an intern in 1985 and had worked successfully on Office. In 1995, he moved over to resuscitate Microsoft’s moribund game business. His Age of Empires success gave him real credibility with Bill Gates and Steve Ballmer. Fries had self-financed Microsoft’s quick expansion in game development, and now he was keen on expanding even more with the Xbox. He had considerable credibility with the Microsoft brass.

“They had a plan I believed in,” Fries said of the Xbox team.

The beauty contest

The Xbox guys wanted their console to be a Ferrari, with a hard disk drive and the best PC graphics components. But the WebTV crew wanted a true appliance that had nothing to do with the PC. It would be cheap and capable.

Bill Gates had to settle the matter of who would lead the project. The WebTV team, led by people such as Nick Baker, Dave Riola, Steve Perlman, Tim Bucher and their sponsor Craig Mundie, argued that the appliance was the way to go because of its low costs. The WebTV crew focused on the $300 cost that most consoles sold at. They huddled together with Mundie’s Windows CE low-cost software team. John DeVaan, another executive in charge of WebTV, carried weight with the Microsoft inner circle.

The question was who brought the biggest guns to the table. The two sides met with Gates for a “beauty contest” on May 5, 1999. All told, more than 20 people were in the room. Fries was an advocate for the hard disk drive, which he felt was key to graphics quality and a differentiator for the machine. He knew it cost a lot but was frustrated that the engineers couldn’t design a more cost-effective box. He spoke up and believed that the hard drive would fundamentally enable online gaming and set Microsoft apart from the rivals. Gates favored this argument.

Gates asked how easy it would be to convert games from the PC to the Xbox. Blackley said it would be easy because they shared a common DirectX heritage. The Xbox team said the machine would be compatible with the Windows PC, mainly because they believed that’s what Gates wanted to hear. The WebTV people didn’t have a similar good solution for software, as they were dependent on Windows CE, a stripped-down version of Windows that wasn’t compatible with the latest version of DirectX.

As Blackley watched Gates, he was impressed that Gates “ran a no-bullshit operation.” Gates reminded Blackley of J. Robert Oppenheimer, one of the fathers of the atom bomb, who was hardcore, fierce, but also kind. He had no patience for those who didn’t do their homework. The WebTV guys scored some points, noting that the Xbox bill of materials was completely unrealistic.

“This machine had to surprise and delight consumers,” Blackley recalled later. “If you hobble its ability to do that by being too clever with the bill of materials, you won’t get people to clamor for it. The greatness has to be in the machine before it becomes indispensable to the consumer. People will buy it not because it is cheap, but because it is great.”

The WebTV crew also believed they could create a custom graphics chip that could be used across a range of different home devices. But the Xbox team wanted to use high-end PC parts so they could get into the market much faster. They planned to outrun the consoles by updating the hardware every two years. The WebTV team made the mistake of relying upon Windows CE as its game operating system. Gates knew it couldn’t run games well.

Gates said he would love to attack Sony from both fronts, but he didn’t think Microsoft could execute on two different plans. Essentially, the Xbox team brought more heavy weapons to the fight, and Gates sided with them because it made sense to start where the company was strongest, with PC technology and PC content creation tools. But Gates didn’t kill off the WebTV side entirely, as that group had the hardware engineering expertise that was missing elsewhere in Microsoft. The WebTV group later played a small and temporary role in the first Xbox launch.

“Bill was willing to try doing something big and risky and cool,” Berkes said recently. “It was an amazing time.”

Convincing outsiders to support Xbox

After getting the go-ahead, the Xbox team started to seek outside input from developers such as Tim Sweeney, the graphics wizard at Epic Games, maker of Unreal.

Blackley, as a former technical game developer, was a real asset in communicating with the best of the game development community. He explained Microsoft was going after the 29 million hardcore gamers who spent most of the money on games. Kevin Bachus (pictured right) filled knowledge gaps, so the two of them could be pretty persuasive in a meeting.

A big part of Microsoft’s message was that it could provide a counterbalance in the market to Sony’s growing dominance and provide an alternative platform for independent publishers and developers, Bachus said. Microsoft could come into this market and be welcomed as a savior, not as a monopolistic devourer. Microsoft’s entry into the market also helped further legitimize the game industry as a grown-up market, not just a narrow niche for kids. The company could intersect the game industry at a critical point in its transition to mass media.

“The existing consoles were hardware-centric,” Berkes said. “Here’s a chunk of hardware, now go figure out how to write some games. The existing software tools and development environments were primitive at best. A key principle behind the Xbox was to put the developer and content creation first.”

Sony felt like it was in close touch with established developers, said Molly Smith, a former Sony spokeswoman who watched the Xbox story unfold from a competitive view. After all, third-party publishers created 70 percent of the games on Sony’s consoles. But Microsoft’s pitch struck a chord with PC developers, indies, and those that wanted to break into consoles.

Bachus focused on the non-technical sides of the project. He crafted the first profit-and-loss proposal and helped figure how to relate to game developers and publishers. He worked on the message about what Xbox should represent and communicate that both internally and externally. The aim was to show outsiders that Xbox was easier to develop for.

“There was incredible internal and external resistance and skepticism about Microsoft making a console,” said Drew Angeloff, who would join Blackley’s entourage in the early days.

Microsoft’s team tried to find a PC maker to create the Xbox hardware, while Microsoft focused on the software. Leaders like Michael Dell turned them down flat, as they saw no profit margin in a “razor and razor blades” model, where you sold hardware at a loss and made money on the games.

It was becoming evident Microsoft might have to make the machine itself, marrying the best of the versatile PC with the best of appliance-like game consoles. Intel’s Pat Gelsinger told the team that the Xbox would cost a lot more to make than Microsoft thought, and Intel decided to ratchet down its participation.

“We laughed at the idea they would blow a few billion dollars,” said one Intel source.

Inside Microsoft, it was sometimes hard to get people to join the team, which some had deemed career suicide. Blackley said others referred to the Xbox as the “coffin box,” because it was going to be dead on arrival. But Blackley felt like he had nothing to lose. He had no valuable stock options, in contrast to early Microsoft employees. He didn’t have much to lose.

The team pressed on. They felt the Xbox could be a classic disruptive technology, allowing a new entrant to enter games and undercut the existing way of doing business. The Xbox would be the way for developers to express themselves as true artists.