Our strategic challenges began right at the foundations of the Xbox project, where there was no core agreement on our basic mission. If you had asked three people, “Why are you doing Xbox?” you would have gotten three different answers. Someone would have said, “Because we have to beat Sony in the living room” (whatever that meant). Another would have claimed that “we can build something that uses the power of the PC ecosystem to produce a better, totally redefined gaming experience.” And still a third might have said, “Microsoft needs to branch out into other markets to drive growth and profit.” While all of these statements were true to varying degrees, none of them satisfied the first step in the yet-to-be developed 3P Framework. They didn’t state our purpose, the first element in developing and communicating a complete strategy to the team.
At that advanced stage of the project, I could not articulate a clearly defined mission for Xbox. The truth is that the thought never even crossed my mind. Thinking as a manager rather than as a leader, I was far too busy dealing with day-to-day crises to step back and actually survey the forest to establish a strategic approach to our problems. This lack of clarity created significant short-term and long-term issues for the team; building a complicated project on top of an unclear foundation is not a recipe for success. See Pisa, Leaning Tower of.
The official approval for Xbox in December 1999 didn’t allay the doubts others had about our chosen approach. There were senior leaders in the company who thought the entire project was misguided and should be cancelled before it even got started. Bill and Steve heard many of these concerns, which gave rise to second thoughts of their own. On Valentine’s Day 2000, less than two months after our initial approval, Steve called a senior leadership meeting to re-evaluate our plan, largely precipitated by some heated email exchanges concerning the strategy.
This meeting included the four primary leaders of the Xbox project—J Allard, Ed Fries, Rick Thompson, and me. Also present were Bill Gates, Steve Ballmer, Rick Belluzzo, and a few other senior leaders from outside the Xbox team who had a stake in our work or cared personally about the gaming space. We later dubbed this meeting the “Valentine’s Day Massacre” because it was originally scheduled as a one-hour meeting at the end of the day and ended up lasting over three hours, ruining a number of planned romantic evenings.
The meeting was held in the Microsoft board room in Building 8. Considering this was the headquarters of what many saw as the technologic evil empire of that era, Building 8 was rather small and nondescript. There was a receptionist but no visible security—a throwback to the days before 9/11. Finding the board room was quite the adventure. You had to know just the right progression of left and right turns to get there, and even then you might go right past it without noticing. Or you might stumble into Bill Gates’ office, which was across the hall from the meeting room.
The room itself was quite small with a conference table that could comfortably seat twelve but holding SRO seating for about thirty people, assuming nobody wanted to be comfortable. It had no external windows—just glass facing out into an internal hallway, and even that window was usually covered with drapes. The whole claustrophobic effect was like entering a submarine, making it the perfect battle-worn venue for many epic product reviews, budget discussions, and strategic debates. I’d been called “stupid” there more times than I care to remember . . . and somehow I kept going back for more.
The meeting began in the usual dramatic fashion, with Bill arriving late and diving right into the middle of the conversation (literally and figuratively), slamming his hand on the table, and yelling at me in “clear terms” about the errors of our ways. The concerns ranged from our deviation from the PC business and technical model, to the size of the financial losses, to the confusion Xbox could create in the PC games market. Most important, our plan, such as it was, went against the grain of most lessons Microsoft had learned in its first twenty-five years of success.
Understandably, anything that could disrupt the PC/Windows ecosystem—the strategic and financial heart of Microsoft’s business— required something akin to tiptoeing through the tulips without crushing any of the flowers. A long, unfocused debate ensued over our plan’s lack of strategic focus and clarity: Were we creating Xbox to move the PC into the living room, or were we doing it to build a living room business? Although I didn’t realize it at the time, this was my first hint that the Xbox project would come to be about managing change—in the market and within Microsoft.
After a couple of hours of raised voices and more table pounding—this was an old-school Microsoft meeting, after all—I said, “Look, if you don’t want to do this, just say so. We all had other jobs before this got started, and we can move back to doing other things if that is what you want.” The Xbox team’s stance was simple: this is the only way we can do this successfully, and if that doesn’t fit with the company’s direction, let’s cancel the project and move on. This incited an unfocused discussion in the opposite direction about what would happen in the marketplace if we did not do Xbox. In the end, we agreed that Xbox was important to the broader company strategy for a number of reasons, among them the necessity to compete with Sony in the living room. Not the crispest of answers, but at least an answer.
Steve asked Rick Belluzzo, my boss at the time, if he thought the current team was capable of doing this successfully. In many ways, this was an unfair question since the group was still forming, the leaders were largely untested at this scale, and important portions of the plan had yet to be written. To his enduring credit, Rick answered quickly and firmly that he trusted the team to get it done. In a moment that changed many of our lives, Steve concluded that the time for second guessing was over and gave the project the go-ahead. He and Bill agreed to provide strong support for the program and give us the opportunity to prove our plan.
True to their word, they remained strong, firm Xbox supporters through the good and especially through the bad of the early days of the project, and without that support, Xbox would not have survived. I often reflect that it is easy to criticize CEOs and leaders for decisions that turn out badly, and Bill and Steve have certainly been subject to their share of scrutiny. But I also believe that we mostly forget to give leaders credit when they make tough, even brave, decisions that turn out well and change the course of an industry. I will never forget Bill and Steve’s leadership, and Rick’s strong support, on that Valentine’s Day.
Soon thereafter, Rick Thompson decided to leave Microsoft to work at a start-up he had helped fund, and I became the day-to-day leader of the Xbox project, a position we later called the Chief Xbox Officer. I have never been a gamer, and my selection as the leader had more to do with the fact that I already oversaw the PC games and hardware divisions, the businesses most relevant to the Xbox effort. Serendipity has a way of creating opportunity by putting us in a certain place at the right time. Ready or not, I was now in charge of a very complex project, one that would require equal combinations of creativity, strategic thinking, organizational skills, and no small amount of luck.
Excerpted from Xbox Revisited ©2015. Reprinted with permission from Brown Books Publishing Group.