What happened with the Xbox One?
The console’s on surer footing now, no doubt, but between its announcement in May 2013, its launch in November 2013, and the six months following said launch, it was dogged by bad press and angry consumers.
Here are some highlights of that terrible, horrible, no good, very bad year for Microsoft’s Xbox division:
- The Xbox One would require a persistent internet connection.
- The Xbox One wouldn’t play used games — you’d put in a disc, install it to the console’s hard drive, take out the disc and it would effectively be useless.
- Every Xbox One would come with a Kinect motion sensor.
- The Xbox One cost $US500 at launch, $US100 more than the PlayStation 4.
Between unclear messaging (Microsoft flip-flopped on the first two of those four bullets), a major push into non-gaming applications (the Xbox One has an HDMI-in port, so you can plug your cable box right into it), and an incredibly high price point ($US500!), Xbox fans were angry.
So angry, in fact, that Microsoft’s then-Xbox leader Don Mattrick took to the company’s Xbox blog to roll back major features of the Xbox One that people were upset about.
One month later, Mattrick was out at Microsoft, quickly replaced by longtime Xbox exec Marc Whitten. Another nine months later, and Microsoft would replace Whitten with current Xbox leader Phil Spencer.
Between an unclear marketing plan for announcing the Xbox One, a massive managerial shakeup, and an insanely high price point, the Xbox One got off to a tremendously bad start.
So, what happened?
What is most confusing is that the Xbox One was Microsoft’s game to lose.
The Xbox 360 was a tremendous success with consumers (~80 million consoles sold), extremely profitable for Microsoft, and — in general — a great game console. Microsoft already had the gaming audience on its side when the Xbox One debacle happened. So what went wrong? Tech Insider put this question to original Xbox and Xbox 360 leader Robbie Bach in an interview this week.
Bach had a lot to say on the subject.
“It’s easy to be an armchair quarterback. It’s easy to look in hindsight,” Bach said when we asked him about the price point — again, $US500 dollars, which was $US100 more than the PlayStation 4’s launch price — and how it seemed obviously too high, even from an outsider’s perspective.
In Bach’s new book, “Xbox Revisited,” he speaks of the moment when then-PlayStation head Kaz Hirai announced the $US500 price of the PlayStation 3 as a high-five moment among the Xbox team. Xbox’s rival was way too expensive, which put the Xbox 360 in a good position to outsell the PlayStation.
Given his team’s reaction, how is it possible that Microsoft repeated that exact mistake with its very next console? The short answer? Kinect, Microsoft’s motion control device.
Here’s a more thorough answer, provided by Bach (emphasis ours):
My back of the envelope belief is that they were having a trade off between how important Kinect is and how many games are going to support Kinect. If Kinect is an option, they get less game support. And the minute you make Kinect mandatory in the package — which is what they chose — now you have a pricing problem, because you have two controllers. And Kinect’s not the cheap one.
So, from a purely financial perspective, the $US500 price point for Xbox One made sense to Microsoft’s Xbox One team. The console itself is expensive to produce, as is its camera/microphone-combination controller, Kinect. Rather than eat the cost, Microsoft chose to offload the cost to customers — a reasonable choice for a business, but a potentially lethal choice in a highly competitive marketplace such as game consoles.
Once you make that decision, and you decide a Kinect is going to be in every box, you either have to decide you’re going to lose money — and lose a fair amount of money — or you have to decide you’re going to price point at a price that gets you into the right range.
Bach knows about losing money to succeed.
During his tenure at Microsoft, he led the team that produced the original Xbox and the Xbox 360. In order to establish Microsoft’s place in the video game business, his team took a calculated loss on the Xbox. Their projection was one to $US2 billion. In reality?
“Xbox lost five to seven billion dollars during its four-year life,” Bach writes in “Xbox Revisited.”
The price point may have affected sales that first year, but it wasn’t the only symptom of Microsoft’s missteps. A shakeup in management at Microsoft couldn’t have helped, Bach explains:
Unfortunately, for the team, there was a lot going on at Microsoft at the time organizationally. They were getting ready to split up the Xbox group. Don Mattrick left right before the product launched. There was a lot of really difficult dynamics, that did not help decision making.
Bach emphasises that the team launching the Xbox One “was not the Xbox 360 team,” and “naturally, they’re going to approach things in a different way.” In so many words, any established standards set by Bach and the team that launched the original Xbox and the Xbox 360 were largely wiped away after Bach’s departure from Microsoft in 2010.
“They made some awkward choices on marketing. They made some awkward choices in business practice. And Sony took advantage of that,” Bach said in the interview.
I love that team, and I think the product’s actually a great product. I think it will be successful in the marketplace over the life cycle, and I think they have made a lot of progress to improve its performance in the marketplace. So I think they’re on a good trajectory and I feel really good about that.
But the idea that they’re gonna price something at the price point they did? And have that be the only price point? It was just a mistake.
On May 13, 2014 — just six months after the console officially launched — Microsoft dropped the price to $US400, removed Kinect from the box, and began rebuilding its battered fan base. Thanks to the price cut, Xbox
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