The Xbox 360 turned Microsoft into a worthy player in the gaming industry, but many would like to erase the troubling release.
In November 2005, Microsoft launched its Xbox 360 gaming console in the United States. The device would kickstart the beginning of a new generation of console. A generation of consoles that would be plagued by hardware defects and almost discouraging Microsoft from ever releasing a gaming console. What transpired during this stressful period and how did Microsoft manage to navigate itself out of a seemingly never ending cycle of issues?
For Microsoft, the next generation console would have to finally tip the scales in its favor and help it gain significant market share in a market dominated by Sony and Nintendo, especially in Japan, where the American software company was practically invisible. The company had ditched the old bulky design, trading it for a slick white design, adding wireless controllers that would give the console a high tech allure.
The next generation console
In May 2005, Microsoft announced the successor of the Xbox, the Xbox 360, unveiling the console on MTV. Microsoft presented a slim white design, parting from the bulky black design of the first Xbox console. The device would come with improvements for the XboxLive service, delivering an immersive online experience. Chief Xbox officer at Microsoft, Robbie Bach, said in the press release that the first Xbox was Microsoft’s way to help gamers redefine gaming. With the Xbox 360, it would continue its ambition to push gaming and entertainment to the next level.
The Xbox 360 game during an era when high-definition television was just starting to gain meaningful consumer adoption. The team had optimized its latest console to work with wide-screen high-definition screens. Through the so-called Xbox Guide Button, the centerpiece of the wireless controller would be the gateway to endless entertainment and connect players with friends and family. Engineers at Microsoft pushed the performance of the console by including e, a three-core PowerPC-based CPU, a custom ATI graphics processor and more than 512 MB of memory to create a seamless experience.
While announcements like these always come with a lot of fluff, the leap from the previous Xbox and its primary competitor Sony, with its massively popular Playstation 2 console, was enormous. It’s hard to picture such a great leap forward, but living through this era of entertainment, the technical marvel that console gaming was set to become, was mesmerizing. Microsoft was set to push the limits of consumer entertainment with its latest console. But, as the launch day approached, the problems for Microsoft had only just begun.
Xbox 360 launch
Microsoft was faced with many challenges as the launch date was approaching. In October 2005, Kristan Reed from Eurogamer spoke with former Chief Experience Officer for the Xbox at Microsoft, J Allard, about the new console in the run up to its launch. Microsoft was a month away from launching the Xbox 360 and everything was being prepared to make a grand opening. The company was pushing hard to make a worldwide release without months of delay.
Despite the push for a global launch, the available units at launch would be extremely limited, with Microsoft having to overcome multiple supply and logistical challenges in months to come. The Xbox 360 was set to become a tough release. The device would combine cutting edge hardware with live services, which were still under development. However, while software could be tinkered with, Allard pointed out that the silicon was the most challenging part of the design and manufacturing process.
Explaining that the silicon integrated into the Xbox 360, was on the bleeding edge of the technology, with the team having to work around the constraints the technology posed at the time. The team at Microsoft had to plan everything right to be in time for the November launch, Allard added. Other aspects of the device could be more easily sourced, such as plastic, memory or discs. But silicon, the heart and soul of the device, was far more scarce.
With silicon being so tough to integrate, Microsoft knew the launch of the Xbox 360 would be extremely difficult, Allard commented to Eurogamer. He referenced EA Europe Chief, Gerhard Florin, who said in order to do the right thing, one must have guts, which are accompanied with their own set of challenges. Hence, Microsoft knew it would be facing logistical challenges. But the teams as Microsoft have put in the hours to get as many devices to customers.
The interview with Allard had a strong focus on the lead up to the launch, with the limited availability of inventory and release games not being ready in time. But, between the lines we can read that Microsoft was dead set on making a global release, with the teams still trying to make the software work to be ready at launch and manufacture as many units as possible.
Red Ring of Death
The Red Ring of Death, as it was so aptly called, destroyed millions of Xbox 360 consoles. In a January 2007 interview with Mercury News, Bill Gates, commented that the company was where it wanted to be with its Xbox 360 console. But months in, the outlook for Microsoft looked less than stellar with the incoming wave of faulty devices turning into a PR-disaster of biblical proportions. The software giant took a defensive stance at first, setting the stage for how it was about to process faulty consoles.
In February 2007, the BBC received an upward of 250 complaints from viewers about their broken down Xbox’s. Microsoft told customers they were responsible for fixing their devices after the one year warranty ran out. One such customer was Alex Ainsow, who explained to the BBC that his console was working fine, but after the one-year mark had passed, his devices kept crashing. He sent in the device for repair, which cost him £85 ($107). The enjoyment of his repaired device didn’t last long, as just three days later, his device got the infamous RROD.
Craig Jenkins experienced the RROD error message when his Xbox 360 was two months past the warranty. Jenkins received the same message Ainsow. The device could be fixed for 85 pounds. As the problem became widespread among gamers, the news spread like wildfire across the community and media. Editor at website Gamesindustry.biz, Ellie Gibson, commented to the BBC that gaming companies should charge such excessive rates for repairs.
Meanwhile Microsoft was trying to fend off incoming criticism, stating that the issues were limited, and not systemic. Customer service representatives would handle each incoming complaint, case by case. The company gave Ainsow a replacement device and some complementary games for the trouble he had experienced. In actuality, the problems for Microsoft started to expand with damage running into an upward of $1 billion.
The situation became uncontrollable for Microsoft after denying the issues for over a year and now had to make a drastic u-turn to prevent an even greater fallout. In July 2007, the company announced it would extend the warranty for the Xbox 360 to three years and it would refund customers who’d already paid for repairs.
In a statement, cited by Wired, the company deemed the return rates unacceptable. The timing wasn’t a pure coincidence as it was just before the major gaming convention E3, with Microsoft undoubtedly wanting to steer the conversation away from the RROD to its more glamorous triple AAA titles.
The late intervention from Microsoft was perhaps one of its greatest failures, as already back in December 2005, Chicago-based customer Robert Byers, sued the company over the possible design flaw with the device. Microsoft again denied that the problem was widespread, refusing to comment. Paul Jackson, Research Analyst at Forrester, explained to the BBC that these types of lawsuits are highly opportunistic within the extremely litigious U.S. legal system.
Manufacturing issues
In January 2008, 8Bitjoystick spoke with an insider on the Xbox 360 project. While the source wasn’t disclosed by the news outlet, the insider had strong insights about why the console had such a high hardware failure rate. The insider explained that the console’s design had little margin for important parameters, meaning that there was little room for error. This meant that devices that experienced no hardware or software deficiencies could last for many years, whilst others would fail within as little as a few hours.
The insider referred to his launch unit, which had been working fine since the day it rolled out of the factory. However, despite his unit coming out of the production line unscathed, many weren’t as fortunate due to an immature manufacturing process. Many consoles were able to pass the quality inspection as testing equipment and the program coverage were insufficient to capture the many possible defects that could occur during production.
Consoles experienced a failure rate up to 30 percent. Figures far below the 30 percent mark already warrant immediate intervention. But, the insider commented, management at Microsoft decided to push the console nonetheless to keep operations going. What transpired was a mass fallout that would lead to the infamous Red Ring of Death (RROD).
The RROD wasn’t a specific problem, but served as an umbrella for a host of issues with the device. The insider explained to 8Bitjoystick that the error message signaled a malfunction of the digital core of the device. This could range from the CPU, GPU, memory or any other vital component necessary to operate the console. A failure of one of those critical components could be a faulty heat sink, broken parts, missing parts, poor soldering. Any mishandling along the manufacturing process could have triggered this malfunction.
Microsoft in turn kept communication in generalities, not acknowledging the core issue with its console. However, it couldn’t deny or sweep the problem under the rug. It launched an extensive return policy, extending its warranty policy from one year to three years to ensure enough customers could return their device for a new unit.
Reliving the Xbox360 RROD
In 2011, Professor at Columbia Business School, Rita McGrath for Harvard Business Review, commented that the incoming problems for Microsoft’s latest entry in the gaming market, were spotted early by the developers. McGrath commented that the team behind the Xbox 360 was developed by those who formerly worked on 3DO’s failed game console. Many won’t remember the device as it failed to gain any meaningful market share. The team also worked on other projects that were swiftly banished to oblivion such as WebTV, Apple video cards, and Microsoft’s Ultimate TV.
They used their experience to create a console which was able to generate profits quicker. The observations made by McGrath are interesting, as it suggests the team was able to anticipate the incoming problems. However, the reality was far different. The Xbox 360 proved to be an unreliable product during launch. This suggests the team behind the Xbox 360 was more concerned with generating profits, due to the high development costs of the previous generation, and less focussed on building a durable machine.
In the same year of McGrath’s comments about the Xbox 360’s success, the RROD was still an ongoing issue, with this time around, the Kinect was believed to have set off another wave of crashing consoles. Microsoft denied there was a connection between the Kinect and the Red Ring of Death, stating that every device was developed to be compatible with the console. Whatever the explanation, the problem kept plaguing Microsoft years later.
In July 2015, in a IGN podcast episode, Peter Moore reflected on the turbulent months of the RROD, which rendered countless Xbox 360 devices useless. The problem would prove costly for Microsoft, with the company having to put aside $1.15 billion to repair the consoles and extend the warranty for customers. Moore said the problems surfaced as reports were coming in through their customer service. But at the time, it was still unclear what caused the issues customers were experiencing.
The incoming complaints got the team worried, with the former President of Entertainment and Devices Division at Microsoft, telling Moore this would become the company’s billion dollar problem. Engineers at Microsoft were running tests, seeing multiple defects occurring. The problem became a multi-headed problem, as there seemed to be no single source. The indicators were pointing toward a heating problem, Moore noted, with some customers finding DIY fixes.
Moore sat down with the finance team to run the numbers and estimate the monetary hit the Xbox division would have to take. The finance team concluded it would cost $1.15 billion, of which $240 million would be directed at FedEx expenses alone, to turn the ship around and recover damage to the brand. Moore had to deliver this news to the CEO of Microsoft, Steve Ballmer. During a meeting in Building 34, Moore had to scramble every inch of courage he could find to deliver the news to Ballmer.
Saving the Xbox brand
As Moore was outlining all the different steps necessary to solve the problem, he was trembling in front of Ballmer, who could be an intimidating figure. Moore reinforced the necessity to fix the problem, comparing it to Microsoft’s Tylenol moment. Those old enough to remember, might recall the Tylenol murders in 1982, where capsules were laced with potassium cyanide. Johnson & Johnson had to put everything in motion to save its brand.
Ballmer asked what it would take. Moore dropped the infamous $1.15 billion figure and without hesitation, Ballmer ordered him to do it. Seamus Blackley, a former creator of the original Xbox, added that executives like Ballmer and Gates could be intimidating at times, but they knew when to step up and help solve the issue. There was nothing else that Microsoft could do then to be honest, which made the business so strong, he recalled.
Moore commented that if Microsoft hadn’t allocated the funds to build the recovery program, there wouldn’t be an Xbox One or a Xbox brand at all. The whole ordeal was mentally draining on Moore. The team was working overtime to find the root cause of the problem, but it proved so much more challenging than they could’ve anticipated.
Todd Holmdahl, who served as hardware engineer at Microsoft, was mentally exhausted trying to find the root cause, Moore explained. Holmdahl was approaching the problem from every angle, but that the heat was one of the primary causes that remained in the back of everybody’s mind. They changed the solder to lead-free alternatives for the production version to meet European Standards, but it was unfamiliar territory for the engineers.
In January 2016, Microsoft found itself in another lawsuit, this time with an investigation from the U.S. Supreme Court from customers who had sued Microsoft, claiming that the Xbox 360 scratched their games. While the console manufacturer was able to wane off many allegations by pointing toward the warning label, notifying customers to not move the console while it’s in use.
Microsoft was able to withstand incoming claims about scratching disc readers for some time, but years later lawyers found an alternative way to demand a re-assessment of the case and revealing that underneath the slick design of the Xbox, much more was going on beyond the RROD. Proving that the Xbox 360’s architecture was flawed the first day it left the factory floor. Despite all the troubles plaguing the console, Robbie Bach had a more humble experience of the troubles during the RROD period.
The root cause
In a June 2008 interview with VentureBeat, Bach noted that the brand remained strong even during this turbulent time. Stating that brand preference, customer satisfaction and willingness to recommend remained stable during this period. Even as customers were coming back with their third and fourth device broken down, Bach saw this not as a failure, but as indication of how strong the Xbox brand had become.
Over a decade later, Microsoft finally unveiled the root cause of the RROD. In a 2021 documentary by Xbox, member of the engineering team for the console, Leo Del Castillo, explained that the problem was caused by malfunction soldering balls, who couldn’t handle the constant stress of running hot and back to cold, which was a result of gamers turning on their console for a quick game and shut down quickly after. This put immense, unforeseen stress, on the hardware.
There was more to Ballmer’s decision than just saving the Xbox brand, the console had to stay relevant to consumers in order to keep Microsoft relevant in a world where the PC was set to take a backseat. Ballmer was one of the leading figures behind the Xbox project and had to stay behind the product.
Lessons learned
In April 2016, Microsoft announced it would stop production for the Xbox 360 console. The console attracted millions of gamers around the world, with customers spending 78 billion hours gaming over a period of 10 years, across almost 86 million units sold. But undoubtedly at Microsoft, in the back of everyone’s mind, there was a sigh of relief. They could now finally close the chapter that had brought so many of them restless nights.
Microsoft has learned valuable lessons from its launch. It wanted to make a big splash and tip sales in its favor, as previously it was unable to gain any meaningful market share in Sony’s core market, Japan. Microsoft wanted to outperform Sony at every turn, pushing the limits of what was technically feasible. This has cost them greatly. While the sales of the Xbox 360 have been impressive and Microsoft firmly establishing itself as a gaming company, the road to greatness was turbulent.
In hindsight, as with many such events, it’s easy to spot where Microsoft made a wrong turn. The company was so focussed on pushing the limits of the hardware in order to blow every competitor away and capture leisure time in the living room,once and for all firmly establishing itself as an entertainment company.
In doing so, it took the risk by allowing consumers to push the device to the limit. Jumping in and out of the console to use it for gaming, music, video, connecting with friends. This put immense stress on the Xbox 360 and what would eventually cause the infamous Red Ring of Death. Consequently, the team at Microsoft trivialized the issues until the problem became such a PR-nightmare, it could no longer be ignored.
Executives at Microsoft should’ve anticipated the fallout after reports from their factories and customer service teams started to pour in. They either had to stop production to find the problem, instead of pushing for global stock availability. This obvious vacuum would be capitalized by Sony in the short term, but the Xbox brand wouldn’t have become so tainted that over a billion dollars was necessary to save it.
