Xbox controller
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How Xbox changed the gaming business

Source Code

Good morning! This Monday, Microsoft's unlikely success story, the Beijing Stock Exchange opens today, and "Tiger King" is back for Season Two.

Happy birthday, Xbox

It's easy to overlook now, but Microsoft's Xbox is one of the most unlikely success stories in the history of the video game industry.

Today marks the original Xbox console's 20th anniversary, two decades after the release of the infamously ugly black box, its unergonomic "Duke" controller and the first entry in Bungie's iconic Halo series. That Microsoft pulled it off, and weathered so many storms along the way, is a stunning feat of technical acumen, savvy business bets and plenty of good fortune.

The Xbox was a pioneering console everyone thought would fail. When Microsoft first began entertaining the idea of a video game console in the late '90s, it had little experience in developing consumer hardware outside PC peripherals.

  • CEO Bill Gates, concerned about Sony's PlayStation, believed the video game industry could start eating into the PC market and wanted Microsoft to be in the living room.
  • The first Xbox, the product of competing internal teams with various visions for the device, was designed to make use of PC components and software like a hard drive disc, an Ethernet port and Microsoft's DirectX platform, the latter of which inspired the Xbox name.
  • Though Microsoft priced it at $299, the device cost about $425 to manufacture, leading to a $4 billion loss. But Microsoft had established its foothold in the console business as a result.
  • The Xbox's saving grace was Halo, a revolutionary first-person shooter from then Chicago-based studio Bungie. Microsoft acquired Bungie in 2000; the Halo series has since sold 81 million units to date.

The golden age of Xbox was still a rollercoaster. Microsoft launched the Xbox 360 in 2005, both $200 cheaper than Sony's eventual PS3 and a whole year earlier. The timing and price point proved a colossal advantage.

  • The Xbox 360 helped usher in online multiplayer for console gamers with Xbox Live, just in time for megahits like Activision's Call of Duty and Epic's Gears of War. The Xbox 360 was also an early haven for indie games, which for the first time could be downloaded onto the console's hard drive.
  • Yet Microsoft's eagerness to best Sony almost derailed the Xbox business with the "Red Ring of Death," a near-fatal hardware flaw in the design of the Xbox 360's chipset that began bricking consoles.
  • Microsoft put together a pricey recall effort to protect the Xbox brand, while also developing a new and improved chipset to avoid the RROD. Thankfully, most consumers forgave the company, but the debacle reportedly cost more than $1 billion.

The Xbox 360's follow-up was a disaster. In 2013, Microsoft and Sony were neck and neck in the console business. Microsoft took a risky gamble with the Xbox One by positioning it as an all-in-one entertainment hub.

  • The runup to the console's launch was an absolute mess. Xbox chief Don Mattrick fumbled the messaging around the Xbox One, creating a public relations nightmare when consumers believed Microsoft was implementing an online check to kill the used game market.
  • The always-online debacle, coupled with its TV focus and the bundling of the Kinect motion sensor, soured the Xbox One launch, despite Microsoft's eventual reversal at E3 2013.
  • The company's sales never caught up to the PlayStation 4, which ended up dominating the decade with a slew of high-profile exclusive games and nearly 120 million units sold. That's estimated to be more than double what the Xbox One sold, though Microsoft never disclosed numbers.

Microsoft executed a stunning turnaround for Xbox. But the plan, conceived by newly appointed Xbox chief Phil Spencer, took much of the last decade. In 2014, Spencer began a strategic effort to completely overhaul the platform by bringing it closer to the Windows ecosystem and eventually overseeing the creation of Xbox Game Pass.

  • Though Microsoft tried to compete with the PS4 by introducing more powerful mid-generation hardware, Spencer knew they needed more. So he went on a buying spree starting in 2018 to flesh out the company's exclusive games lineup.
  • The approach culminated just months before the launch of the Xbox Series X/S with the purchase of Bethesda parent company ZeniMax for $7.5 billion.

The future of Xbox looks radically different from the platform's past two decades. While Nintendo and Sony have kept their focus on exclusive console games and closely guarded intellectual property, Microsoft has embarked on a bold and ambitious multiplatform, subscription-driven approach that's shaken up the entire game business.

Two decades ago, Microsoft wanted in on the console business and was willing to spend billions for a seat at the table with Nintendo and Sony. Now, the Xbox platform is changing the game, and it could take years for the rest of the industry to catch up.

— Nick Statt (email | twitter)

A version of this story appears today on Protocol.com. Read it here.

A MESSAGE FROM FACEBOOK

Rochelle is one of many experts working on privacy at Facebook—to give you more control over your information.

Hear from Rochelle on why Facebook supports updating regulations on the internet's most pressing challenges, including federal privacy legislation.

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People are talking

In response to a tweet listing the people who have walked on the moon, Elon Musk said there's more to come:

  • "Soon, that list will grow much longer as humanity reaches new heights!"

But Musk quickly came back down to earth and clashed with Bernie Sanders, who tweeted that the wealthy should pay their "fair share" of taxes:

  • "Want me to sell more stock, Bernie? Just say the word."

Former Time Warner CEO Jeff Bewkes says in an upcoming book that AT&T botched the merger with his company:

  • "We didn't think they would go to such a level of malpractice as to not listen to anybody…even though they themselves had no experience in those areas."

J.C. Flowers founder Chris Flowers called bitcoin a "laughable" payment method:

  • "It's too slow, too expensive."

On Protocol: Andrew Bosworth said safety and privacy are a tough balancing act in the metaverse:

  • "There's not a one-size-fits-all solution on how to resolve those priorities when they compete."

Coming this week

AI World Congress begins today. The virtual conference includes tons of speakers with expertise in AI and data.

The Global Conference on Mobile App Ecosystem Fairness is today. Epic Games' Tim Sweeney is expected to speak at the event.

Slack Frontiers starts tomorrow. The event includes a few speakers and some product updates from Slack.

The second season of "Tiger King" premieres on Netflix on Wednesday. Wonder no more what Carole Baskin's been up to.

The FCC is holding an open meeting on Thursday. The commission will talk about wireless access in rural areas and will consider a rule that would require text providers to direct some messages to the National Suicide Prevention Hotline.

In other news

The new Beijing Stock Exchange might not be all it's cracked up to be, according to a Protocol analysis. Based on the companies listed on the exchange, only a handful are really tech-focused, and many are relatively small.

COVID-19 misinformation in audio is flying under the radar, according to The New York Times. Despite their reach and influence, audio platforms like iHeart, Spotify and Apple aren't being scrutinized in the same way as other tech platforms.

IBM had a quantum breakthrough. Its Eagle processor reached 127 qubits, Arvind Krishna told Axios, which it says is too complex to simulate on regular computers.

Your ID on your iPhone? It'll cost you. Apple is forcing states to maintain their own digital ID systems, CNBC reported. Apple will still get near-complete control over how the system works.

The FBI was the victim of an email hack. Officials said hackers got into the bureau's Law Enforcement Enterprise Portal and sent fake emails, but no data was compromised.

Facebook thinks users are better off with its algorithms, according to The Washington Post. Lawmakers would prefer a chronological feed, but internal documents show that Facebook has looked into that option and decided its ranking system is better.

President Biden is expected to sign the infrastructure bill today. The bill includes $65 billions for expanded broadband access and other programs, but the infrastructure needed to carry out those programs is lacking.

Several states updated their antitrust suit against Google. The revised complaint claims Google tried to take over online advertising through coercion, and it cites a secret program called "Project Bernanke" that Google supposedly created to help its own ads.

The U.K. wants an investigation into Nvidia's Arm deal. The British government is expected to order a probe into the deal sometime this week, following the European Commission's examination, which is already underway.

AMC dips into crypto

AMC Theaters now accepts bitcoin as a form of payment. It also takes litecoin, ethereum, bitcoin cash, Apple Pay, Google Pay and PayPal. Dogecoin is apparently on the way, too, according to CEO Adam Aron.

PayPal is the only way you can pay with crypto as of now, which implies that crypto is accepted online only. It's no surprise, then, that the company is exploring shiba inu as a way to pay, too.

A MESSAGE FROM FACEBOOK

Rochelle is one of many experts working on privacy at Facebook—to give you more control over your information.

Hear from Rochelle on why Facebook supports updating regulations on the internet's most pressing challenges, including federal privacy legislation.

Learn more

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