On November 22, 2013, Microsoft will launch Xbox One—Bill Gates’ vision for the total entertainment hub and a perfect fit for the modern living room. As a gaming enthusiast, I’ve found myself taking a trip down memory lane as I eagerly await the next evolution of Xbox.
It’s November 9, 2004. I’m driving home with my first Xbox. I get home, jump out of the car and barely remember to lock the door as I barrel up the steps so I can unbox the most advanced piece of gaming hardware in the world. I peel away the plastic protecting the newest addition to my home entertainment family and hook up all the necessary wires to my old tube TV. I take extra caution in opening up my limited edition, aluminum-encased copy of Halo 2, then hit start and begin exploring level one: Cairo Station. I’m hooked.
This story can be repeated more than 100 million times: With a growing and somewhat rabid fan base, Microsoft has clearly tapped into deep customer needs.
The Genesis of Xbox
Bill Gates mentioned the Xbox for the first time in 1999. Sony had just announced the PlayStation 2, and Nintendo had begun working on the Nintendo GameCube. Gates was concerned that Microsoft was being left behind in the coming multimedia convergence.
At first, Microsoft’s gaming division was miniscule by its own standards with only 50 employees. Gates put the prominent PC gaming expert Bill Fries in charge, knowing that Microsoft needed to create a compelling device designed specifically for gaming. PC gaming—still today—is enabled through a set of programs and settings known as DirectX. Fries and his team ran with that idea and created the first iteration of the DirectX-box, also known as X-box (the hyphen was dropped before launch).
Microsoft examined and refined everything about the Xbox. The internal marketing team hated the name and tested it just to prove to the development team that no one else would like it either. But, the public loved it! Today, the Xbox brand has become ubiquitous in Microsoft’s home entertainment offerings extending from gaming to Xbox Music (formerly the Zune brand) and beyond.
Enter Gaming Studios & Exclusive Content
Microsoft knew that even with the best hardware in the market, the Xbox wouldn’t succeed without the right games. So, they leveraged their strong financial position and invested in gaming studios to develop exclusive content and marketing campaigns to make sure that “Only on Xbox” became synonymous with excellence.
Microsoft’s earliest investments included Bungie and its flagship title, Halo: Combat Evolved. The main games in the Halo franchise are known as FPS games: first-person shooters. While FPS games were already popular with PC gamers, marketers were worried about console-gamer appeal; these types of games simply weren’t the norm on consoles at the time. The popular console games were family-friendly platformers like Mario and Sonic. Microsoft’s marketers were pleasantly surprised when Halo became one of the highest-selling titles in the Xbox catalog. The product planners were right on trend, enticing hard-core gamers with immersive, first-person shooter game titles.
While they loved the games, gamers had strong, negative feedback to the original Xbox controller. The controller—dubbed the ‘Fatty’—was so big that it really only worked for people with large hands. Anyone with smaller hands—especially children—just couldn’t use it. The controller became a public relations nightmare, with one site calling it the “Blunder of the Year.” Xbox jumped on the issue right away, and the original controller lasted only one year before it was redesigned from the original ‘Fatty’ (left) to the smaller ‘Model S’ (right):
Microsoft continued to push the growth of its Xbox business, investing in engineering developments, acquiring hardware and software ingredients and building out revenue channels. From the very beginning, the Xbox was designed to leverage what PC players had enjoyed for years: connectivity. While Sega had pioneered online gaming in consoles with the Sega Dreamcast, the system shipped with only a dial-up modem, limiting which games could be played online. Microsoft built a standard computer port into the Xbox so that it could take advantage of broadband speeds and a hard drive for downloadable content, adding further revenue.
Microsoft sealed its dominance of the American gaming world when it launched Xbox LIVE on November 15, 2002. By building a network with dedicated servers for specific games, a built-in matchmaking service to find other gamers and the ability to save and reconnect to other players on a friends list, Microsoft created the ultimate experience. Despite free alternatives from Sony and Nintendo, Xbox LIVE remains the most popular online gaming service, with an estimated membership of 60 million.
After years of success building a solid fan base and revenue stream among hardcore gamers, Xbox watched as the Nintendo Wii captured the family and casual gaming crowd. Capitalizing on this trend, Xbox pushed for innovations to engage all gamer types, which resulted in the Kinect.
The Kinect pairs a standard RGB camera with an infrared camera to capture users’ motions to play games without a controller. By leaving the traditional controller behind, Xbox brought games like Dance Central to a new generation of gamer.
Microsoft’s Secret Sauce
With Xbox One, gamers will experience two types of entertainment on one television simultaneously, such as playing a game while listening to personal music collections or watching a show. To Microsoft, Xbox One is an opportunity to capitalize on changing media consumption habits, allowing users to save and record live TV as with a DVR as well as the ability to purchase and rent movies and television shows a la carte, like Apple and Amazon. In addition, the Xbox One will feature a new generation of Kinect that can manipulate all these features—the next generation of gamers may never use a traditional controller.
It seems to me that Microsoft’s secret sauce is to never get comfortable, which sounds deceptively simple but is extremely difficult to maintain. As the Xbox team continuously innovates, it’ll be interesting to watch how competitors try to keep up with new gaming and entertainment options. In the meantime, I’ll be on the couch conducting intense new product development and customer experience research.