Why did Microsoft enter the video game space?

Why is Microsoft in the video game space? originally appeared on Quora: the place to acquire and share knowledge, allowing people to learn from others and better understand the world.

Response from John Byrd, CEO, Gigantic Software; director, Sega; Senior Manager, Electronic Arts, on Quora:

Let me tell you how it really went.

Microsoft never took video games seriously, until they had to take video games seriously.

Microsoft was kicked and screamed into the video game space by a small handful of visionaries.

In the 1980s and early 1990s, companies like Atari, Sega, Nintendo, Commodore, Electronic Arts, and Activision controlled most of the video game market. Microsoft did not. Have you ever heard of Microsoft Adventure, Microsoft Decathlon or Microsoft Jet? No, you didn’t. The most famous Microsoft game of that era, Microsoft Flight Simulator, was developed by a very talented writer and programmer named Bruce Artwick. Microsoft Flight Simulator was a port of the Apple II.

Microsoft’s first real effort to take gaming seriously didn’t happen until 1995. That was the year when, under the encouragement of Alex Saint-Jean, Microsoft released a technology called DirectX. I met Alex St. John at the first Microsoft Games conference. He wore a toga and greeted me saying “Hail Caesar!” The idea was that Microsoft was going to bring a Pax Romana to all video game companies, providing a unified layer for programming all 2D and 3D video cards.

The game companies didn’t quite understand this. There was a lot of shouting about the presentations at that first Microsoft gaming conference. Lots of foam toys were thrown away.

Despite this, DirectX was a useful innovation, as the alternative was for all video game companies to write drivers for all 2D and 3D cards on the market.

The 3DO company made a pivot to PC gaming around this time. I became the main DirectX advocate at 3DO, and taught dozens of game programmers there how to use DirectX. Shortly after, 3DO released gunman and franchised it to death.

Around this time, Microsoft decided to become a traditional third-party publisher, like all other PC publishers at the time. By that I mean they were in business to copy, package, distribute and market games from game developers. Ed Fries led this division, which grew from about fifty people to more than a thousand in a few years, thanks to its success in the PC edition. Ed is a thinking man. Since those days, Ed’s Passion became the reconstruction of old video game prototypes that would otherwise have been lost to history.

Microsoft’s first serious foray into original games was 1997’s Age of Empires, developed by Ensemble Studios. It was the first game that showed that Microsoft could successfully publish original games. The Ensemble leader was a gregarious type named Tony Bonman.

Around 2000 or so, Tony wrote an email to Bill Gates. I remember reading that email. A copy of it hung in the lobby of Ensemble Studios in Dallas. The email was two paragraphs. Short, sweet and direct. Microsoft acquired Ensemble in 2001.

At that time, a team including Kevin Bachus and Seamus Blakeley started designing a new game console. The “new” console they came up with was a PC. Yes, just a PC. The idea was to make the most of Microsoft’s PC experience for this new console.

Microsoft’s console didn’t run Windows, but there were good technical reasons why it didn’t. A few years earlier, Microsoft and Sega had experimented with a lightweight version of Windows, called Windows CE, for Sega’s Dreamcast console. It turned into a slow shipwreck for Sega, and I was at the center of that shipwreck. Windows CE was so slow it was unusable. I remember a Windows CE demo on Dreamcast where the console struggled to draw a 3D chessboard in real time. A fucking chessboard, people. Eventually, Sega ended up dumping Windows CE.

Anyway, the new Microsoft console contained some parts of DirectX and the operating system was not based on Windows CE. So at least they were right.

It’s hard to express the pushback that there has been, inside and outside of Microsoft, to release a game console. Why the hell do you want to release a game console? Microsoft makes Windows, Word and Excel and that’s all the universe will need to be happy.

Luckily, at the time, Microsoft was strapped for cash, so they were able to make the huge initial investment needed to launch a new gaming system.

The first Microsoft Xbox sold quite well. It sold 24 million units, I think, which beat the approximately 9 million Sega Dreamcasts we sold at the time. But it didn’t beat the Playstation 2, which sold around 155 million. The Xbox equality ratio was around 8 at the time, which meant that most people bought that many games per console. Game consoles always lose money making and selling. You get your money back selling cheap plastic discs with fun games on them, for $60 a pop. But Microsoft has never had the best tiebreaker in the industry; Nintendo and Sega have always had this honor.

Anyway, after this point, Microsoft had:

  • A reasonably successful game console (it lost money, but it didn’t that a lot of money, relatively speaking).
  • A thriving PC game publishing business.
  • Brand recognition.
  • Pockets deep enough to weather macroeconomic events, like the dot-com meltdown of 2002.

This is enough to move the bike forward, if you keep pressing the pedals.

Thus, from 2003, the Microsoft games business depended, and depends, on:

  • A steady stream of high-quality original content for their platforms (see Halo).
  • Big budget TV and media ad buys to coincide with new releases.
  • Good Metacritic scores (this part is easy, just send game reviews to a private party at E3 and give them some schwag).

Unfortunately, since its inception, Microsoft has viewed its gaming business as a means to achieve other business goals. Outside of Microsoft’s game divisions, Microsoft knows nothing about gaming or the gaming industry. “We’ll use games as a medium,” says every Microsoft executive who’s never worked on a game in their life. “to introduce X into every living room!” Where X is something boring and dumb, like virtual offices or network TV.

As a result, Microsoft keeps repeating the same mistakes when it releases new game consoles.

Despite all this, the games business continues to support Microsoft’s core business, as customers moved away from PCs for Android and iOS devices. Microsoft has been selling off its gaming business for decades. Personally, I don’t believe in buzz. The gaming industry simply provides too much visibility into consumer behavior for Microsoft to get rid of.

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