How Microsoft’s Xbox challenged Nintendo and Sony and changed console gaming forever

Twenty years ago, Microsoft introduced the Xbox, a stunning feat of technical acumen, savvy business bets and plenty of good fortune.

A 20th anniversary image for the Halo franchise.

The original Xbox launched on this day 20 years ago with the Bungie exclusive Halo: Combat Evolved. The series has since sold 81 million units.

Image: Microsoft

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.

The home console graveyard left in the wake of Nintendo and Sony's rise to dominance in the 1990s was filled to the brim with bright and promising products, from Sega's trio of Genesis, Saturn and Dreamcast consoles to SNK's Neo Geo to the Atari Jaguar. None survived past 2001. Yet the Xbox stands tall today as one of the three pillars of the console business and now a cornerstone of Microsoft's multi-platform gaming strategy bridging consoles with PCs and now the cloud.

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.

  • After a fateful meeting between Microsoft CEO Bill Gates and Sony CEO Nobuyuki Idei, in which Idei rebuffed Gates' offer to use Microsoft tools for the PlayStation 2, Gates believed the video game industry was becoming a threat to the PC market. So various internal teams inside the company, began pitching Gates on a play for the living room, according to Bloomberg's oral history on the creation of the Xbox, despite near-universal skepticism that a U.S. business could break Japan's grip on the market.
  • The first Xbox was the brainchild of Kevin Bachus, Seamus Blackley and various others affiliated with the company's DirectX platform. The group, which beat out competing teams with its Windows-centric vision, conceived of a home console that would use PC components and software like a hard drive disc and an Ethernet port, accoridng to VentureBeat's two-part series on the Xbox origin story, though an Xbox running Windows never got off the ground.
  • Though Microsoft priced its first Xbox at $299, the device cost about $425 to manufacture. The differential would ultimately lead to a massive $4 billion loss on the original Xbox, but Microsoft had established a foothold in the console business.
  • The saving grace of the original Xbox was Halo, a revolutionary first-person shooter from then Chicago-based studio Bungie. Microsoft product planner Jon Kimmich scouted the developer as a potential acquisition target in 2000, and Halo ultimately premiered alongside the Xbox a year later as an exclusive launch game. The 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 PlayStation 3 and a whole year earlier. It proved a colossal advantage, as the Xbox 360 moved tens of millions of units and became synonymous with the new era of online multiplayer for consoles.

  • While many PC gamers had been enjoying online multiplayer since the earliest days of gaming, console gamers were largely stuck playing couch co-op and split-screen multiplayer. The Xbox 360 changed that with Xbox Live, just in time for mega-hits like Activision's Call of Duty, Epic's Gears of War and Halo 3. It was also an early haven for indie games, which for the first time you could download directly onto the console's hard drive.
  • Yet Microsoft's eagerness to best Sony on launch timing and price almost completely derailed the entire Xbox business with the onset of the "Red Ring of Death," or RROD, a near-fatal hardware flaw in the design of the Xbox 360's chipset that began bricking consoles. The estimated number of consoles affected was anywhere from 23% to as high as 54%, according to Edge Magazine's in-depth report on the Red Ring of Death.
  • Microsoft put together a pricey recall effort to protect the Xbox brand and ensure consumers were made whole, while also developing a new and improved chipset to avoid the RROD.
  • "I presented to [then Microsoft CEO] Steve Ballmer: 'This is going to cost us $1.15 [billion] to fix this — to protect the brand, to protect our reputation, to keep this business going,'' game exec Peter Moore, then the head of Xbox, told Edge. Ballmer approved it, and the recall initiative helped consumers largely overlook the disaster.

Microsoft's Xbox 360 follow-up was nothing short of a disaster. In 2013, Microsoft and Sony were neck and neck in the console business, with Nintendo a distant and forgettable third after the Wii U flopped. But Microsoft took a bold 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, who had helped shepherd the Xbox 360 to more than 75 million units sold, 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 took much of the last decade, and only showed signs of progress a few years after Microsoft promoted Phil Spencer in 2014 to lead the division. Spencer began a strategic effort to completely overhaul the platform by bringing it closer to the Windows ecosystem, establishing the Xbox Play Anywhere initiative for cross-platform play and purchasing, and eventually overseeing the creation of Xbox Game Pass in 2017.

  • Though Microsoft tried to compete with the PS4 by introducing more powerful mid-generation hardware, the company knew it needed more. So Spencer 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, giving Microsoft access to an enormous portfolio of lucrative game series like Elder Scrolls and Fallout.
  • Microsoft now operates nearly two dozen game publishing and developing subsidiaries under the Xbox umbrella. Meanwhile, Xbox Game Pass has grown to tens of millions of subscribers as of 2021.

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 multi-platform, subscription-driven approach that's shaken up the entire game business.

The best example of Microsoft's recent success is this month's launch of Forza Horizon 5, which Spencer said was the strongest Xbox Game Studios launch in history with more than 4.5 million players in less than a week. It helps, of course, that the game is available for Xbox Game Pass subscribers on the Xbox Series X/S, older Xbox One consoles, mobile phones via the cloud and Windows PCs.

The company's biggest hits from here on out are likely to look a lot like the launch of Forza Horizon 5, where the game's success is measured not by how many copies it sells but how many people play it regardless of what screen they're using. 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 industry to catch up.

Protocol | Workplace

CTO to CEO: The case for putting the tech expert in charge

Parag Agrawal is one of the few tech industry CTOs to nab the top job. But the tides may be shifting.

Parag Agrawal’s appointment to Twitter's CEO seat is already alerting a new generation of CTOs that the top job may not be so out of reach.

Photo: Twitter

Parag Agrawal’s ascension to CEO of Twitter is notable for a few reasons. For one, at 37, he’s now the youngest CEO of an S&P 500 company, beating out Mark Zuckerberg. For another, his path to the top as a CTO-turned-CEO is still relatively rare in the corporate world.

His leap suggests that CEO succession trends may be shifting, as technology increasingly takes the center stage in business and strategy decisions not just for tech companies, but for the business world more broadly.

Keep Reading Show less
Michelle Ma

Michelle Ma (@himichellema) is a reporter at Protocol, where she writes about management, leadership and workplace issues in tech. Previously, she was a news editor of live journalism and special coverage for The Wall Street Journal. Prior to that, she worked as a staff writer at Wirecutter. She can be reached at

The fintech developers who made mobile banking as routine as texting or online shopping aren't done. The next frontier for innovation is open banking – fintech builders are enabling consumers to be at the center of where and how their data is used to provide the services they want and need.

Most people don't even realize they're using open banking services today. If they connected their investment and banking accounts in a personal financial management solution or app, they're using open banking. Perhaps they've seen ads about how they can improve their credit score by uploading pay stubs or utility records to that same app – this is also powered by open banking.

Keep Reading Show less
Bob Schukai
Bob Schukai is Executive Vice President of Technology Development, New Digital Infrastructure & Fintech at Mastercard, where he leads the technical design, execution and support of innovative open banking and fintech solutions, as well as next generation technologies to support global payment and data capabilities. Prior to Mastercard, Schukai’s work focused on cognitive computing, financial technology, blockchain, user experience and digital identity. He is also a member of the Institute for Electrical and Electronics Engineers.
Protocol | Workplace

Google contractor says she was fired for 'ungoogley' behavior

According to a charge filed with the National Labor Relations Board, "ungoogley" is Google's term for having a bad attitude.

A contractor at Google staffing firm Modis claims she was fired from her job after asking about pay.

Photo: Future Publishing/Getty Images

A contractor at Google staffing firm Modis claims she was fired from her job for "ungoogley" behavior after asking about holiday pay at a meeting with management, according to a charge filed with the National Labor Relations Board by a lawyer for the Alphabet Workers Union.

Tuesday Carne said in an interview with Protocol that she was fired after just nine days of working in the data contracting facility in South Carolina. Carne's termination letter (which Protocol reviewed) called her behavior at the meeting "unacceptable and 'ungoogley'" and claimed that her behavior was the reason for her firing.

Keep Reading Show less
Anna Kramer

Anna Kramer is a reporter at Protocol (Twitter: @ anna_c_kramer, email:, where she writes about labor and workplace issues. Prior to joining the team, she covered tech and small business for the San Francisco Chronicle and privacy for Bloomberg Law. She is a recent graduate of Brown University, where she studied International Relations and Arabic and wrote her senior thesis about surveillance tools and technological development in the Middle East.

Protocol | Policy

Biden FCC nominee Sohn is walking a tightrope with Republicans

Gigi Sohn faces plenty of GOP opposition, but the longtime net-neutrality advocate is hoping to pick up a little Republican support as she deals with Democrats’ narrow margins.

Gigi Sohn’s work for net neutrality has become an issue in her confirmation hearings for the FCC.

Photo: Alex Wong/Getty Images

Gigi Sohn wouldn’t mind getting support from a Republican or two, and it’d certainly make her path back to the Federal Communications Commission easier.

During her Senate Commerce Committee confirmation on Wednesday, Sohn, a progressive favorite and longtime net-neutrality advocate, touted her commitment to ensuring a diversity of voices on the airwaves, her past fights for small conservative networks she personally disagrees with and her habit of socializing with those she battles on policy.

Keep Reading Show less
Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

Protocol | Workplace

Microsoft Teams is going after small businesses

Microsoft Teams Essentials offers longer, bigger meetings for a relatively small price tag.

Companies can now buy a standalone version of Teams.

Photo: Mika Baumeister/Unsplash

Microsoft announced Wednesday that companies can now buy a standalone version of Teams — one of its most important products and a major player in work messaging and video chat, alongside Slack and Zoom. The product, called Microsoft Teams Essentials, aims to give small or medium-sized businesses a communication hub that costs less than its competitors'.

Microsoft will charge small businesses $4 per user per month for Microsoft Teams Essentials, while Zoom’s cheapest paid plan is $14.99 per user per month and Slack’s is $6.67 per user each month, when billed annually. The free version of Microsoft Teams still exists, as do the various other Microsoft 365 plans that include Teams. Teams Essentials offers longer meeting times, larger group meetings and more cloud storage.

Keep Reading Show less
Lizzy Lawrence

Lizzy Lawrence ( @LizzyLaw_) is a reporter at Protocol, covering tools and productivity in the workplace. She's a recent graduate of the University of Michigan, where she studied sociology and international studies. She served as editor in chief of The Michigan Daily, her school's independent newspaper. She's based in D.C., and can be reached at

Latest Stories