Original subtitles

Video games are one of the most powerful mediums ever created.

This merger of imagination and technology

has introduced a fundamental evolution in human interaction.

Damnit!

And now represents a culture

of 2.4 billion gamers connected worldwide.

Yes! Move!

But just 20 years ago, the console

that kicked off the era of online gaming in the living room...

Oh my God!

Almost didn't exist.

Do you ever want to make hardware?

No, that's one thing that we decided not to do.

The idea that Microsoft could ever create a game console

- was seen as a bit of a joke. - Microsoft?

They wear khakis and they're boring and they're Office and they're Windows.

You might as well call it Nerd Box, right?

I can't imagine how it could be better.

A new console was seen as a risky bet.

There it is.

At a company not accustomed to losing.

You're proposing taking money away from Windows

in order to fund some game system?

That is an insane business to get into.

It was fear, uncertainty, and doubt.

We're gonna make it, aren't we sir?

This is the story of how a passionate group of gamers

forever changed the course of a corporate titan.

They saw the future.

Broadband internet to the television set.

Like, you can do that?

And then Bill says, "We should do this, we should let these guys do this."

And the journey to get that controller into our hands.

This thing is gonna be the most badass thing you can imagine.

Fire at will!

Think about the way you could tell stories with that.

No matter where you are in the world,

we can all be part of one bigger community.

We need this, this is like the hotline for us.

We take it for granted now, but back then this was like science fiction.

We weren't sure how we were gonna do it.

Xbox, watch tv.

Oh God.

Oh, hell no, Microsoft!

Gamers are not gonna be tolerant of any level of at all.

The risk here was enormous.

You're always just one catastrophic bug away from not making it.

I remember thinking, "Hey, maybe we're in over our heads."

There's a new contender in the video game wars.

Xbox is going to be the future.

Truly the future of video games.

- Xbox. Taking over the living room.

Limitless, connected digital entertainment.

You guys never understood.

The company is going to face fierce competition.

Sniper! Nooo!

It's a ticking time bomb.

It makes me very nervous to actually play this for you.

Xbox, getting a major overhaul.

A bold vision for the future of gaming.

It's the Xboooooooooooox!

Hello. I'm Bill Gates. Chairman of Microsoft.

In this video, you're going to see the future.

Microsoft first came up with the Windows concept back in 1983.

I'm going to show you real quickly a couple highlights from the product.

The graphics interface is an integral part of this new generation,

that take PCs much further than they've gone before.

When I came to Microsoft in 1987, the average age was 27, and I was 27.

We were an amazing young company

with an amazing young founder in Bill Gates.

He knew business better than anybody out there,

and he also knew technology.

He was able to synthesize things that nobody else in the industry could.

It was incredibly fast moving.

It was the kind of place where people didn't hold back.

For someone who just wanted to really let loose and grow

and learn, it was an amazing place.

Bill Gates and the team back then were the disruptors,

which was exciting and palpable.

We just thought of ourselves, kinda like rebels, kinda, you know,

where, where the big companies like IBM were these huge companies,

but we were this little rebel group of hackers,

you know, doing this cool work.

I'm very optimistic about where we're going.

But that really changed in '95.

Windows '95 has taken over computer stores.

They were on line in the middle of the night,

personal computer users packed into stores dying to get their hands on one.

When Windows '95 launched it was like

a coming-out party for the whole company.

Microsoft made a thing that everybody in the world wanted.

It was like air to me, it just was. It existed and you needed it.

Today's world, you can't make it without a computer.

It has thousands of programs that some of us may need.

I can run three or four applications at the same time.

Windows '95 is so easy, even a talk show host can figure it out.

Oh!

By the late '90s,

Windows was dropping a billion dollars to the bottom line every month.

...3! ...2! ...1!

No running!

It was the most profitable business

in the history of the human race.

I don't think there's ever been anything remotely like it

unless you count the Spaniards going to the New World

and like, literally hollowing out a mountain made of silver.

Microsoft, which has a business relationship with NBC,

is the most powerful engine in the new age of computers,

a giant cash machine,

and it strongly disagrees with the government.

In the late '90s we were sort of the bad guys, the Death Star.

The perception of Microsoft, I think generally, was not great.

They were in the middle of the Justice Department monopoly issues.

We were the big gorilla in the room on most subjects.

And so people viewed us as sort of the big, bad tech company.

By 1999, 90 percent of computers worldwide

used the Microsoft Windows operating system.

They were untouchable,

without comparison, or viable rival.

We'd been successful in the operating system world,

built a huge PC business,

built Microsoft Office into this big business,

we were the tech behemoth.

Windows overtook that industry and transformed the world,

but during that period, disruption was coming from all sides.

For decades, Sony had been a Japanese electronics giant

with a history of producing personal and home entertainment hardware.

And then, in 1994,

Sony struck gold with the PlayStation...

a gaming console with unparalleled success.

The launch of PlayStation really

thrust gaming into popular culture in a big way.

And Sony saw an opportunity for gaming to be even bigger and touch entertainment.

What Sony discovered was a console

was really a Trojan Horse to the living room.

And once that device got into the living room,

it could be a multimedia entertainment device.

Sony was putting different things into the home.

They're putting a hard disk here in like a DVR,

they're putting memory here, they're putting a processor here.

And if they could connect all those things together,

it would be a computer.

A potentially existential threat to Microsoft.

Without further ado, let me introduce to you,

the next generation of PlayStation technology.

Even before Sony launched PlayStation 2,

they were just creating this perception of inevitability.

PlayStation 2 was the next big thing,

and anything in its way was going to get crushed.

Finish him!

They said our new PlayStation is so powerful

that it's gonna replace the PC.

Sony was showing a slide at trade shows

and to our customers of a future home

that was full of PlayStations and didn't have any PCs in it.

Which was like shooting cannonballs over Microsoft headquarters.

It was an incredibly arrogant thing for them to do,

but it was pointed, too, I mean, that was a very serious threat.

In the '90s, Microsoft was a paranoid place,

and when somebody said Sony's gonna put a PC in the living room,

that got everybody's attention.

And if Sony was at the point of locking down the living room,

what was Microsoft going to do?

One possible answer was brewing not from the top executive ranks,

but from deep within the Microsoft corporate structure.

Four renegades on the DirectX software team,

who were working on tech to help developers

create games for Windows, and who were united by a fervent belief

that games were the future.

I was leading the DirectX development team with one of my colleagues

on the marketing side of DirectX, Ted Hase.

You know the question that we were starting to ask is,

"Where was all this graphics technology headed?"

Windows had won the desktop operating-system wars,

so we were starting to ask where there could be threats

or opportunities in the future.

We quickly narrowed down to games

and an all-encompassing entertainment platform for the living room

as being an opportunity for us.

Otto had carefully built a career at Microsoft,

and he had already taken a risk,

because Otto could have been an important programmer

in a legitimate Microsoft group like Windows or Office.

Instead, he chose to be in this DirectX group,

because he was passionate about graphics.

Ted and I both had folks on our teams

we felt could bring some additional brainpower to the conversation,

including Seamus Blackley...

How do you describe Seamus? He's a, he's just a piece of work.

One of the most brilliant people I've ever met.

Besides being a physicist and a really amazing mathematician,

Seamus really embodied the heart of what it meant to be a game developer.

When I saw arcade games when I was little,

when I saw Computer Space,

my first idea was not, "I wanna play this game for hours."

My idea was, "How can I make my own thing?"

One of Ted's employees was Kevin Bachus,

who had a financial and market analysis background.

Kevin's like a Vulcan in the best possible way.

His interface to the world is entirely intellectual.

That is correct.

We had day jobs for DirectX,

but a lot of our thinking was how we could build brand-new technology

that was single-mindedly focused on making the very best games.

The four of us, we played games, and we loved games,

and we wanted to make them.

That really meant something for us.

They were working on DirectX, a set of software tools

that standardized game development

across PC hardware, and which was readily

embraced by PC game developers.

But the team saw a way to push DirectX further, with an idea

that could revolutionize the foundation of console game development.

With Windows and DirectX, we have the platform

that everybody wants to do the work on to make the games.

We already have the entire infrastructure of everything you need to create

all this technology sitting on our platform.

If we could only create a single hardware standard,

a box designed just to run DirectX.

It gave us the idea that we could produce better games

than Sony and Nintendo and Sega.

At that time Japanese game consoles had very proprietary chipsets

and they just didn't work very well for, you know, Western developers.

The instructions on how to use it would be in Japanese.

What the DirectX group was proposing was, there's a better way to do this.

We're gonna use PC architecture that you're familiar with,

which is just gonna work out of the gate,

so they can spend more time crafting and building their games.

They had an incredibly developer-friendly story,

you already know how to write these games if you've written them for PC,

you can write them for console as well.

You know, that message is pretty powerful.

For us, this was about advancing the gamers' interest

and the game developers' interest, which would advance Microsoft's interests.

So we decided that this was the right time

to try to build support for the idea of Microsoft building a game console.

At the same time, nobody ever believed

that Microsoft would actually have the audacity to attempt such a thing.

The four of us, we were on a journey to get support for this crazy idea

around putting a DirectX-powered box in the living room

to deliver interactive content.

We were trying to crash meetings and get traction on this thing.

We were an annoyance.

Nobody knows who the hell we are.

And we were constantly discovering super important people who were roadblocks,

or who wouldn't get it, and who didn't think games were important.

You're proposing taking money away from Office development

in order to fund some game system?

These people dreaded having meetings with us.

No surprise, displacing the stated direction of a company

at the scale of Microsoft was not a trivial undertaking.

Realizing that who you knew inside of Microsoft

was at least as important as what you knew,

we brought in the guy who could try to build support

for the idea of Microsoft building our game console.

Nat Brown.

I had a lot of time spent talking with different teams

and working with kind of long-term strategic planning.

Nat had an incredible network of connections.

He opened up a lot of doors for us.

Nat was sort of like our Obi-Wan Kenobi.

This wizard figure who would show up and go, "Oh, I know who you need to call.

You need to talk to the guys in this division or that division."

He knew the structure to Microsoft.

It's been nothing but a fight to figure out how the place works.

One of the first things Nat said was we needed a proper code name.

Something that would plant in peoples' head

and take on a life of its own.

Nat said, "Well, isn't it really a DirectX box in the living room?"

I'm like, "Yeah, it's like a DirectX box. That's what it's about."

And we just put up on the board, let's call it the DirectX box.

And so we had this awkward thing in our mouths all the time.

It was a DirectX box.

And I remember saying, "That's too long. It's just Xbox."

And we liked that.

That was our codename,

as a stand-in, until we had something better come along.

We built a business case that showed how big this business could be.

To get buy-in on that you have to distribute it,

you have to go socialize it.

My trick was getting our stuff in front of executives

to make them say, "I want to understand this business."

The team set their sights on a logical choice,

a senior executive who spoke their language...literally.

Yeah I'll play real quick.

Ed Fries was a Microsoft lifer, he joined as an intern.

Ed had been critical in the development of Office,

one of the biggest franchises even at that time that Microsoft ever had.

He had this passion for games, he loved games,

he programmed a game at a very early age.

When most high schoolers

were getting their first minimum-wage jobs,

Fries was already cashing royalty checks from his first game.

So let's take a look at this high-quality product.

A clone of the hit arcade gameFrogger, aptly named... Froggy.

Highly original as you can see. Yeah!

When I left Office to go run the games group,

people told me I was committing career suicide.

Thank you, that's it. Goodnight!

They said, why would you leave Office,

one of the most important parts of the company,

to go work on something no one cares about?

And when I got there, running the games group, I found out they were right.

No one cared about what I was doing. And that was awesome!

In '95, the games group was really small. It was like 20 people.

In a lot of these tech companies there's not as much respect

given for those other disciplines.

Microsoft, at the time, didn't care very much about games,

I think we were just more of a hobby.

We were gamers working in like the bowels

of some Microsoft corporate building.

Our goal at the time was to push Windows as a gaming platform.

I always felt like I was doing underdog stuff,

and that's actually what I really enjoyed,

I enjoyed trying to bring Microsoft from behind in PC games.

After Windows '95 launched, we had to wear these t-shirts

that said "Microsoft knows games."

You know, it was obvious, we didn't really know games,

otherwise we wouldn't have had to put it on our shirt, you know what I mean?

Choose your favorite form of world domination in Age of Empires!

But after a couple of years we launched Age of Empires.

It was kind of crazy, what a fascination that game became.

And it was one of the signature PC strategy games for years.

That was actually a huge success for us, and we started to do some acquisitions,

and we were growing our publishing business.

As we started to ship more quality games, we finally got to the point

where we were respected in Microsoft, and people were like,

"Okay, Microsoft actually does know what it's doing when it comes to games."

Ed took a broken games business and fixed it,

and made it profitable, and found a way to do it at Microsoft.

These are difficult, double black belt, aikido corporate moves.

Steering the tiny PC games division

into a profitable department had won Ed the trust of Bill Gates,

and yet Fries himself wasn't satisfied.

Our PC market share was growing into the teens,

and at the same time we weren't doing anything in the console space,

and that to me seemed like a bit of a waste,

you know, it was this huge market out there.

One day, these guys from the DirectX team walked into my office,

and they pitched me on this thing, the Xbox.

And basically what they pitched was a disguised PC.

I thought, "Oh this is great.

This is like a bridge for me to get to the console business."

This box that will run a native version of DirectX,

which is the part of Windows that's really focused on the game developer,

was revolutionary.

It's gonna be easy to port to this machine, easy to take my games

and make them run, unlike running on PlayStation at that time,

or a Nintendo machine that were just very alien hardware compared to a PC.

Ed understood all this game development

that was happening on the PC, we wanted to make a console

that was specifically designed to be easy and fun to make games on.

And if the most creative people did their best work on your platform,

that's really good business, that's a good idea.

Basically I said, "You know I'm in. I like this idea. I wanna help you guys."

The DirectX team, these were troublemakers, upstarts.

They didn't have these reputations that Ed had,

as sort of born and bred to work at Microsoft.

They didn't really have any political clout within the company.

It was, I think, a big win for them

to get me on their side from my point of view.

This unlikely alliance would bring the Xbox team

closer to the biggest test of all, pitching Bill Gates.

And that opportunity would come sooner than anyone expected.

When Sony unveiled the PlayStation 2,

they started talking about how they were going to be the death of the PC.

A new concept that we'd like to introduce going into the next century,

our EE, the Emotion Engine.

It was like, what a great name. Holy crap, you know, an Emotion Engine.

Our new CPU architecture significantly outperforms

even the fastest Pentium III architecture that's in the market today.

They showed beautiful fighters, models twirling around,

they showed a thousand delicate rose petals

falling from the sky to show just how many polygons,

just the raw math that this behemoth of a device could process.

And guess what, it's got the power of a thousand suns behind it!

For Microsoft, that really crystalized what the stakes were.

And Bill asked the DirectX team to do an analysis

of these claims that Sony had made.

As you can imagine, getting on Bill's calendar was next to impossible.

I felt a huge sense of pressure to make things happen,

and make them happen quickly.

Otto and Seamus provided a fantastic breakdown, very technical,

what the Emotion Engine did and did not do,

which claims were true, which claims were exaggerated,

and at the end, they very audaciously slipped in a little mention

of the fact that, you know, we could build a console too,

and we put together what we thought at the time

was a pretty compelling argument.

Gates had been curious about the viability of a Microsoft console.

But it wasn't until mid-March of 1999, just one week

after the formal announcement of the PS2, that the possibility was finally

starting to percolate amongst the company's elite

at its annual leadership retreat

Semiahmoo was Bill Gates's annual think week,

to think about, strategically,

what sort of projects did they want to greenlight.

One of the programs that you do at this three-day offsite

is an idea-generating effort.

We all sat in a room and people could propose a topic for a breakout.

We would write down a question

and we'd stand there with our question in front of us.

People moved around,

and everybody voted what topic they wanted to work on.

And the question I wrote that year was what if the cable companies,

companies like AOL and Sony, all got together

and they all pooled all the subsidies that they were paying to acquire customers.

They could put out a box for free

because it'd be so ubiquitous

and so highly wanted, that's all I said.

If they could get it into the home as a game console,

it would be like the comet that hit the Earth and wiped out the dinosaurs,

meaning the Windows PC.

I got a big line of people behind me on that one, including Bill,

and off we went to start talking about it for a couple of hours.

And so we had a sort of a two-hour thrash

on pros and cons of a video game console, what was the state of play with Sony.

And coming out of there Gates just called it.

He wanted me to look into what we should do about it.

Thompson's big question

resonated with Gates, and a call went out to the entire company

looking for anyone who could answer.

It was sort of an all-points bulletin to senior managers

all over the company saying,

"Anybody working on any of this kind of stuff?"

And so, in March of '99, the DirectX team and every other group in the company

that touched games in any way,

was brought together for a meeting to talk about

whether we should have a comprehensive games strategy for the entire company.

We took that opportunity to say, "Listen, not only do we have a perspective on this,

we actually have a presentation,

a PowerPoint deck that we'd like to share with everybody that says what we,

the DirectX team, think the company should do."

And obviously that created a great stir at the meeting, nobody was expecting that.

But, it was a great surprise to us to find out

there were other parts of the company that had aspirations of doing the same thing.

I was running a team in what was known as the Windows CE group.

Windows CE was an operating system

designed to run devices like handheld computers or even game consoles,

via a partnership we struck with Sega around their last game console,

which was the Dreamcast.

We had a pretty capable hardware team.

Some of the guys in that group - had worked at 3 - DO.

Have you experienced the awesome power

- of the Panasonic REAL 3 - DO system?

And that was a legitimate game console, albeit one that,

that was not a success in the marketplace, but it was a legitimate console play.

Together, we had the hardware expertise.

And we had a proposal for what Microsoft should do next in the console space.

Obviously!

These guys think they know how to make a game console

and that they should do it instead of us.

We opened the door and Bill's interested in a game console,

so now they're going to edge us out and they're going to step through the door.

They were funded, they had a name, they had leadership, they had,

executive support.

Their argument was, we already know how to do this,

what do these kids know, go with us.

The DirectX team was young and hungry, full of tech know-how and vision.

But Windows CE was well known within the company,

and had experience on their side.

Suddenly it was a race to try to get the most legitimacy inside of Microsoft,

where the winner was going to be the one to bring a game console to market.

And it came to this big battle with Bill.

It was what Microsoft often seemed to do,

which is pit two groups of smart people against each other.

Classic Bill Gates move.

The stage for the cage match was set.

The DirectX and Windows CE teams

would battle for the right to make a Microsoft game console,

in front of founder Bill Gates.

To the victors belonged the spoils.

Having Bill in the meeting was always a fantastic thing

as well as increasing the tension at the same time.

Somebody's confused. Somebody's just not thinking.

He was legendary.

If you went in and you're full of [BLEEP], you'd get shut down.

No, you don't understand.

You didn't, you didn't, you guys never understood,

you never understood the first thing about this.

So, you know we tried really hard not to be full of

He's brilliant.

But it was a very aggressive, male-dominated culture.

Lots of expletives.

Super, super smart, but man if you said something stupid, uh...

I'm done.

Round 1!

From my group's perspective, we felt good.

We thought they didn't really understand the console space,

so frankly we discounted them a little bit.

Ready? Fight!

We proposed something that aligned very much with how business was done

in the game console market as it existed.

You gotta meet the market where it's at.

The Win CE guys were sort of like preaching the model,

but the model isn't very interesting.

In their pitch to Bill as we're sitting there horrified,

they're basically talking - about recreating the 3 - DO,

or making a game console similar to everything else that's on the market.

And we're like, "Ohhh...," you know?

You don't enter a market and copy what the competition does exactly.

You enter a market to disrupt it. To do stuff they can't do.

Windows CE presented, and they talked about this device, and blah blah blah,

and then the DirectX team got up and presented this vision for Xbox.

There were two things in our plan

that we thought absolutely critical to the success of Xbox and games on Xbox,

which had never been done before on a game console.

Number one, a hard drive, that would be important

not only to save information about the player's state

and what accomplishments they had done...

Brutal!

but also so they could store large amounts of data somewhere,

and be able to access and change that over time.

I remember there was a big debate about should there be a hard drive in it?

Or not a hard drive in it?

We were the not-hard-drive folks, we didn't see the benefit of it.

The second component that we thought

was absolutely critical was Ethernet.

The Sega Dreamcast was basically the first console in history

to have any kind of online component to it,

but theirs was dial-up internet using a modem.

That was the technology at the time.

We realized that that was a short-term solution.

What we wanted to do was to point towards the future

and integrate Ethernet and high-speed broadband internet to the television set.

We wanted to bet on the future rather than on the present.

The ability to connect machines to each other

and to the internet was a core part of the DNA.

We were pitching a very traditional game console

and the Xbox team proposal as I understood it,

it sounded to us like, "Hey, we're gonna take a PC,

and then we're gonna go build a console out of that,"

and it just didn't seem credible.

It's just not the way the business worked.

Final round. Fight!

These two groups came at the idea of building a game console

in very, very different ways.

So this meeting got really contentious.

We'd have to watch these guys like on our plan

and tell us it's not gonna work and talk to Bill

about how game consoles really work.

I'm waiting, I'm like, "Come on Bill, kill 'em.

Shut 'em down. They're full of [BLEEP]." And he doesn't do it!

I wanted to see the Bill Gates of old.

I wanted to see Old Testament Bill Gates.

The guy that was famous for throwing people out of meetings

and telling them never to come back and telling them

that they're the dumbest person in the company.

To my horror, Bill sat back and stroked his chin

and was very thoughtful.

Bill said "Well, I think both teams raise some good ideas."

But he didn't seem really that impressed.

In front of that audience we realized we had to bring out every stop.

The guys from the DirectX side knew that you don't go to a Bill Gates review

without showing something really spectacular.

And so leading into this meeting, none of us had slept for like a week.

We made this little device

that had relatively old PC technology

with a game console-like case on it,

and we modified Windows with a hack that like tears open a hole

from the bottom up and exposes the hardware.

There was a bunch of PC components and a game controller

and, you know it was, literally just, held together by chewing gum and tape.

Soldering stuff, stripping wires

and this was like, you know, in the back of our car

or like, you know, on the floor in a conference room

that we were making this stuff.

An ugly timer on it that showed Windows booting up from power.

Booting a PC 20 years ago, would take like three minutes.

It could take longer, it could take five, six, minutes.

These guys played with the PC, pulled stuff out

that wasn't necessary, changed the BIOS.

I turned it on and so it booted in like three or four seconds.

Bill Gates almost jumped across the table,

he was so excited when he saw that.

And Bill immediately looks around...

"Why the doesn't Windows boot like that all the time?"

Yeah. Bill wanted to see it multiple times.

He's, like, "Turn it off and do it again. Turn it off and do it again."

I saw his jaw drop.

This is a guy who knows more than most people in the world

will ever possibly know about PCs,

saw a PC probably for the first time come on immediately,

and we had a software emulator of a PlayStation

that had been written for Windows.

So you can imagine the executives' surprise

when we took a PlayStation disc, stuck it in the Xbox prototype,

and immediately Tomb Raider came onscreen in all of its glory.

It bridged the gap of believability.

It made the idea of Xbox seem tangible and real and achievable.

The DirectX guys were stuntmen, and they played the game a lot better.

We, frankly, I think underestimated

what they were gonna walk into the room with.

That meeting wasn't a great outcome for us.

The Windows CE guys literally said,

"It's not fair, we weren't given the opportunity to make hardware."

And somebody said...

Eliminate him!

"Well nobody told them to build hardware, but they did."

Unfortunately for the Windows CE team,

they brought a PowerPoint to a demo fight.

Looking back on it now, I really do think that Bill looked at us

and saw some aspect of himself, or the early days of Microsoft,

and that's what he thought was going to work.

Bill's reaction was, you guys are proposing

that it's doing good things for Windows,

and it's based on Windows,

and we get Windows in the living room,

that all makes sense.

You're proposing that we spend 500 million dollars on it,

you need to make this presentation to Steve.

How much do you think this advanced operating environment is worth?

Wait just one minute before you answer!

Steve is one of the most enthusiastic and energetic people

I have ever met in my life.

That energy and enthusiasm that you see on stage is 100% authentic.

At the time, if the biggest fan of Xbox was Bill Gates,

the biggest opponent was Steve Ballmer.

Steve, as a good businessman, liked to make money.

He liked, you know, big bold bets,

but he liked big bold bets that would pay off.

This was right at the time when Bill was transitioning

the C.E.O. role to Steve.

And they had already agreed for a couple years

that if Bill came up with some crazy idea

that cost a lot of money that Steve should get a chance

to say yes or no on it first.

And that led into this final meeting,

where we really had quite a large group of executives across the company.

The room was packed,

there were a lot of different constituencies there,

all the way from the field sales force,

to the most technical side of the company.

You had a lot of people very, very interested.

Steve's a big guy, and Bill's in there

and you're in there with these two super-famous guys

who hold your destiny and Steve is really upset

that we wanted to take this risk.

Ballmer understood very well where Microsoft's bread was buttered

and where the money came from.

We were a company known for productivity software.

He didn't want some video game or even the fact that we made video games,

to threaten the very lifeblood of the company.

Steve looked at the Xbox idea and saw insanity.

He went to his whiteboard, he said, "OK, what's this gonna cost?

What's the hard drive gonna cost? What's the Ethernet port gonna cost?

What's the graphics chip gonna cost?"

And he totaled it all up and said "There's no way you guy--

what's your reserve for returns?" Reserve for returns? What does that mean?

Well, we freely admitted that we didn't understand

the first thing about hardware,

but we were gamers, and we were game developers.

Our entire careers had been built around games.

We knew that 3-D gaming was taking off,

and online gaming was just around the corner,

and the best and brightest in the game-development world,

they were moving all their thinking from the PC to consoles.

We had the opportunity to go create something

that was going to take all of the equity,

all the goodwill, all the technology and all of the programming tools

that had ever been created to make Windows applications

and carry it forward to the living room.

And that was the product that we were proposing, Xbox.

Looking back at that moment, what Steve and Bill were seeing

was the future passing Microsoft by.

You know Microsoft was thought of as this dominant company of the era,

but success or even survival was anything but preordained.

If Microsoft didn't grab this opportunity,

that Microsoft would be on the wrong side of the future of tech.

It made everybody step back a second and think.

The console business was something that we needed to seize.

I think that that was where Bill and Steve realized

they needed to move forward with Xbox.

An incredibly electrifying moment.

We'd finally convinced Steve, Bill was convinced.

They've done an outstanding job so far, haven't they?

I think Bill did have a view that,

software running on hardware in a family room

could really bring some unique experiences into the home.

We could start with video games

but it could go many directions from there.

It was really an opportunity to recapture the soul

that Microsoft had at the beginning,

to create that revolution, to create that new platform.

We were going to do something no one else had done.

We were going to launch a console from a software company.

Microsoft had done nothing like that before.

And then it became clear that there was just some really big challenges for us.

At the beginning it was about credibility.

We had a task ahead of us to ensure

that we were taken seriously in the game industry.

This equation of power, performance, and price.

You have to come correct on every single part

of that, you know, to be successful.

There were so many tasks that had to be done

on both the hardware and software side.

We realized that we needed to have a leader.

It was clear to all of us, that that person was Rick Thompson.

He had asked the best questions, the most insightful questions.

We wanted him to be part of the answers.

So Rick was brought in as the seasoned senior executive

who had experience in hardware with peripherals.

Mice and keyboards.

And he had to construct a plan and a go-forward strategy.

My comment at the time was "I'm not big enough for this job."

But, a couple days later, Steve Ballmer calls me into his office and says,

"Let's get this straight between the two of us, this is your job now."

You're making a big splash, you say you're getting

into this consumer market, you know, if that doesn't work out well,

it could really give the company a huge black eye

and that would be very difficult to recover from.

The risk here is enormous,

with the amount of money we could lose on this project.

And for me it was fear, uncertainty, and doubt.

Because you got a business guy who's gonna try to figure out a business model

with my little team of people who helped me with the hardware business.

You got four people coming over from DirectX.

None of us actually knew the rules of the game that we were playing.

And we basically just stood there and looked at each other and said,

"Oh Like, now what do we do?"