A decade later, the former chief Xbox officer revisits his critical decisions

Microsoft lost $5 billion to $7 billion on the original Xbox, launched in 2001. And it made billions of dollars on the Xbox 360. Depending on the time frame in which you look at it, it was either an insane waste of money or the finest strategic decision that Microsoft ever made.

Robbie Bach had to make the call to do it or not. He was the chief Xbox officer from 2000 to 2010. He went forward, and I chronicled the results in two books, one about the making of the original Xbox and another about the making of the Xbox 360. I never got a chance to see the video game business from Bach’s bird’s-eye perspective. I didn’t know, for instance, that he almost quit in 2001, and he even wrote a long resignation letter after a disastrous first revelation of the original Xbox. He has written Xbox Revisited, a memoir of his time at Microsoft as well as his strategy for fixing our country’s problems.

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Bach went on to triumph with the Xbox 360, only to lose in the smartphone war against Apple. And he was blindsided by the Red Rings of Death, the quality problems related to overheating that resulted in a $1.1 billion write-off. The facts from those times are well known, but Bach tells the story in a more emotional way as he extracts lessons from them.

After two console cycles, Bach decided to do work as a “civic engineer” to help fix both charities and governments. I interviewed him about the book and the highlights of his time running Xbox. He’s now able to talk more openly about everything in his experience, including the early decisions, his views of the new Microsoft under Satya Nadella, and whether he wants to run for political office or not.

Here’s an edited transcript of our interview.

GamesBeat: Why did you write the book?

Robbie Bach: I wrote Xbox Revisited because I wanted to start a process where I could have an impact socially. I worked at Microsoft for 22 years. I had a wonderful career there. I had impact in a certain way there, but I wanted to have an impact in a different way.

When you’re an individual, you have to find ways to communicate to lots of people. The three I’ve chosen are speaking, the book, and I do a lot of blogging. Those are my ways of spreading my social impact message the best I can, providing people with tools so they can be more involved in civic and social issues.

GamesBeat: Did you find that it was interesting to turn the tables and be the author, as opposed to the interviewee?

Bach: It was. In fact, what I discovered — I knew this deep down, because in high school and a bit in college I did a lot of writing and enjoyed it. I discovered I love to write. It’s not even the interviewing process so much as it’s the creative process. Deciding you have a point and figuring out the best way to tell the story so people remember that point and it gets communicated deeply.

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Each time I write a blog, I have a good idea of what I want to say, but the interesting part is figuring out how to draw people into the subject and expound it to them in a way that they remember. I enjoy that creative process. I bet you never thought of me as a creative person, but this is a place I feel like I’ve found a niche where I can use my creativity.

GamesBeat: Your view of the project was unique, because it was coming from above. That’s the perspective I haven’t seen much of. When I was writing my books, one of the challenges was trying to be exhaustive about the origins of the Xbox and the different people involved — who made what contribution. In your book, your description has to be more brief.

Bach: The broader difference is that you were trying to tell the story of Xbox. That does require an exhaustive view. I’m not actually trying to tell the whole story of Xbox. I’m trying to tell the strategic story of Xbox. Xbox written from the strategy framework perspective, which is the 3P framework I talk about in the book. I am more selective about the topics I bring up and the people I involve, because I’m focused on that strategy piece.

The book is about taking that strategy and applying it to civic issues. I had a number of publishers look at it and say, “No, we just want you to write an Xbox book.” That wasn’t what I wanted to do. I had the luxury of being able to select my material around the subject matter I was focused on.

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GamesBeat: The subject also reflects that you’re interacting mostly with people like J Allard and Rick Thompson, versus people lower down the hierarchy.

Bach: I struggled with that a bit, because I have deep respect for what the team did. I tried to talk about that a lot in a general sense. Of course, if you’re going to be selective, it’s difficult to pick individuals on the team. At that point you want to be exhaustive, because a lot of people deserve a lot of credit. Generally, I tried to keep that focused on great work the team did, though, because ultimately it was the ability to work together that was an important part of our success.

GamesBeat: Did you have any feeling of trying to clear the air on anything?

Bach: Not really. I left Microsoft in a very comfortable place. Steve and I talked about staying for a longer period of time. He wanted me to make a longer commitment. I had decided that I wanted to go do this social impact work. We picked a time that fit where projects were and that was that. I would tell people, I loved every month I was at Microsoft. Maybe not every day, but every month. And then I haven’t missed it.

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If there was a sense of clearing the air, I probably wouldn’t have talked about mobile phones or Zune. I don’t think I was afraid to stir up some things where I didn’t get it right. That’s for sure.

GamesBeat: I recall that you either had to sign up for another five years or give up your leadership position.

Bach: Steve and I, we’d been having a sort of “How do you feel about next year?” “I feel good about next year.” “Okay, let’s keep going.” At some point, projects reach a space — 360 was winding down. We were gearing up for the next generation of Xbox. The first version of Windows Phone was getting ready to ship. We were going to enter into a big phase of development on a lot of things. You can’t have a leader who’s there without a longer-term commitment. I understood that. I didn’t feel any pressure. I agreed with Steve on that. It was time to make that decision. I had the opportunity to think about it. My wife and I decided it was the right time to go off and do some new things.

GamesBeat: I noticed there was a figure in there about the losses for the first Xbox. It was $5 billion to $7 billion. I don’t remember if anybody really went back and revisited that.

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Bach: If you go back through some of Microsoft’s financial disclosure statements, you can get in that ballpark without too much trouble. It’s a little hard because none of the divisions directly line up with Xbox. That’s part of the reason I used a range. Another part of the reason, you have to decide what costs are allocated to Xbox. We built a whole retail sales force, but that sales force sold Office and Windows too. We built a supply chain that also ended up doing a lot of other things. It’s a bit of an accounting exercise.

The important point isn’t the precision of the number. The point is, it was a big number. It was bigger than what we had forecast. When you’re almost two or four times what you originally forecasted, that’s a big number.

GamesBeat: I can’t get over that it went from that number to a profit of billions in the next generation. It switches from the dumbest thing Microsoft ever did to the smartest thing Microsoft ever did, depending on the time frame in which you look at it.

Bach: You have to understand the nature of the loss. A huge chunk of the loss was in hardware. We designed the original Xbox in a short period of time. We didn’t design it to be cost-effective. We designed it to be sold at a premium to other products. When we realized we couldn’t sell it at a premium, every console we sold cost us money.

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One of the principles of the next generation was, that wouldn’t happen again. Once you change that dynamic, and you have the explosive growth we saw in Xbox Live, things change. Also, we were sort of sub-scale at 20-some percent market share. You get to 40-some percent, the scale economies kick in. A lot of good software businesses run at low volumes are not good businesses. You have development costs up front. But run at high volumes, they’re really good businesses.

GamesBeat: I never saw the resignation letter that you printed in secret after the first E3.

Bach: I was talking to Rick Belluzzo about that a few months ago. He never showed it to Bill and Steve. I didn’t know that. He may have told them that I was not in a good place, but he never showed them the letter.

When I started writing the book and I was thinking through how to tell the story, I remembered writing that email, but I didn’t remember that I still had it. I think I took out three names, but otherwise that’s the note I wrote to Rick. It’s where I was at the time.

GamesBeat: What do you remember that was most decisive about convincing you to stay?

Bach: For my own part, I felt a very deep sense of obligation to the team and the company. As I say later in the book, the counselors we went to to help us through that period told me that was unnaturally so. So partly it was me saying, “I gotta figure out how to get through this.” But a lot of it was Rick saying, “There are ways you can manage this problem without quitting. There are things you should be doing that you’re not doing, and they can make you a better leader and get you through a difficult situation.”

With some help from him, as well as some help from Anne Francis and Jack Fitzpatrick, the counselors I talk about in the book, and with some help from the rest of the team, we were able to get to the other side.

GamesBeat: It’s a very interesting part of the book. It’s a little more personal and emotional.

Bach: One of the things I’ve learned — if you want to communicate to people and get people to engage in an idea, you have to be able to drive emotion. You have to be able to tell a story in an honest way. Without that part of the story, the challenge of Xbox and Xbox 360 would have been incomplete. People wouldn’t have gotten the gravity of what we were going through.

GamesBeat: You could have talked about just your achievements and filled a book that way.

Bach: You know me well. I’m a committed person on these types of things. The book isn’t there to make money or spread my name. It’s there to provide a tool for people to have social impact. If you want to convince people that the tool works, they have to understand its power. The best way for me to communicate that power was to make sure they understood where I was personally and where the team was collectively. That’s where that whole section comes in.

GamesBeat: You chose to talk about the red ring of death as well, and in a more emotional way than a technical or business way.

Bach: The red ring — I felt like that needed to be part of the story. The book would have been incomplete, and it would have made Xbox 360 sound like it was a perfect console, when in fact it wasn’t. As a point of clarity and transparency with the audience, I needed to talk about it.

I also deeply believe that that episode showed the power of teamwork. It’s a great story to evoke both the types of challenges you face and what a team can do when it comes together to do the right thing.

GamesBeat: In the end, do you feel like it was a real serious hardware problem? Or do you feel like it was more of a PR problem?

Bach: No, no, it was a hardware problem. There was a real technical problem. There’s no question about that. We reworked millions of consoles. It’s the worst kind of technical problem, where you can’t say, “Oh, it’s this particular part.” It was a systemic, consolidated design challenge that required redesign work. Those are hard to isolate and hard to fix. It took the team some time to figure out the interactions and figure out what to do about it.

GamesBeat: You also talked a bit about the competition with Apple. It looks like, while you’re winning on the Xbox 360 side, you were in the process of getting beat by Apple and the iPhone.

Bach: In the time frame of the book it would have been the iPod, and then toward the end of the 360 development cycle — probably two years into 360 — the iPhone comes out. Let’s just say iOS and call it good. Apple did some great work there.

GamesBeat: How do you look back on that competition, if you were to summarize it? Zune is part of that.

Bach: It points out a couple of things. Timing matters. Apple hit the technology sweet spot perfectly. Much of the technology in an iPod, and later iPhone, was not new technology, but it was technology that got to the right price point at the right time. For a variety of reasons, we were badly timed. We were too early with touch using a stylus and too late with touch using a finger.

The second thing we knew from Xbox, because we did it much better on Xbox. User experience matters. That’s not a technical statement. That’s, “Open the box. Am I wowed? Does it work easily? Does it set up well? Do I get a special moment when I start to use it? Does that moment stay with me as I use it more and more?” We had some elements of that on Xbox, and particularly with Xbox Live. Apple delivered that in a number of places. In the present day, as a user I’d say Surface has some of those moments. I look at the work I do with Sonos. They have incredibly nice moments.

The power of that design and user experience moment is important in this process. Apple got on a good run. That’s hard to compete with.

GamesBeat: You and J Allard left around the same time. Did some of this Apple competition play into deciding whether to do that, to make this big change?

Bach: No. I can’t speak for J. Certainly in my case this was all driven by a point in time in my life.

GamesBeat: When Ed Fries left Microsoft, he said he felt like he got a second chance at life. Starting over, doing something new with his life in a new career. I imagine you had a similar opportunity.

Bach: Exactly. We should all be blessed with the opportunity to be as fortunate as I’ve been, and as I suspect Ed feels he has been. You get to work in a great place, have a great career, and then get to start over and take another crack at it. You can do something completely different that stretches a different part of your brain. I’m thankful that I have that opportunity.

GamesBeat: Did you toy with any other ideas besides the direction you’ve headed down with the book?

Bach: In the first year I did a bit of consulting. That was fine, but ultimately not terribly rewarding. I continue to do some board work. I find that interesting and challenging. Mostly in the non-profit space, but a little bit in the for-profit space. The other thing, which I don’t talk about at all in the book because it happened after I wrote it — a business partner of mine, a guy named Pete Higgins, an ex-Microsoft guy, we bought a little gluten-free fresh pasta and flour company. We’re executive chairmen there. I have my hands in a small business that’s fun and interesting as well. So I have a few different things going on.

GamesBeat: When did the interest in politics start to spur you?

Bach: I think of it as civics more than politics. I know it’s only a slightly different term. The reason I say “civics” is because I really am focused on not just government agencies and organizations and leaders, but also on community-based organizations and non-profit organizations. The people who have the ability to influence the fabric of our community life.

I’ve loved civics since I was in high school. I talk in the book briefly about one day wanting to be a U.S. Senator. That was when I was in high school. I will not return to that dream.

GamesBeat: Why not make a run for office?

Bach: People ask me that. Is this the prototypical book to prepare for a run for office? No. When you decide to do that, that’s a certain course, and I respect the people who take that course, but it takes a big commitment. It puts you in a place where your impact has to be shaped in a certain way. I want my impact to be as broad as possible. I want to provide tools and approaches and techniques for lots of different people to become what I call civic engineers.

If you run for office, now you have a whole different set of priorities and things to pay attention to that don’t give you the ability to have that kind of impact. It’s still valuable impact, but it’s different. One of my former co-workers, Susan DelBene, is my congresswoman now. I have a huge amount of respect for the commitment she’s made. Congress is a tough place. You’re running for re-election every year. It’s a great way to serve, but it’s just not the way I want to serve.

GamesBeat: Do you have a party affiliation? Republican or Democrat?

Bach: I’d say I’m a Republicrat or a Demlican. Pick which one you want. One of the things that was good for me, writing the book and forcing myself to work through the framework, is I discovered sides of my belief that I had lost during my time at Microsoft. Not for any particular reason, but just because I hadn’t thought about them in a long time. I realized that on many social issues I’m probably left of center, and on many financial and fiscal issues I’m right of center. That’s a place that, politically, if you talk about parties, is no-man’s-land today. I look at each issue and decide what I think is right on that issue.

GamesBeat: It seems like you favor common sense or centrism or….

Bach: The organization I’m spending time with, to the extent I’m spending political time, is the Bipartisan Policy Center. They’re a rational, common sense, how do we tackle problems organization. It’s founded by four Senators who were cross-the-aisle Senators. Lord knows we need more of that.

GamesBeat: You promoted diversity as one of the answers to the problems we have. It didn’t seem like a natural conclusion for you to come to, given your own background.

Bach: The thing that you have to understand — I just wrote a blog post to make more of this clear, talking about immigration. I believe in the power of American diversity. It’s what made this country great. It’s not painless. We’ve been fighting about diversity for 200 years in many respects. But in the end, from that diversity comes new skill sets, new thought patterns, new approaches, new ideas, innovation. Look at the Valley.

There’s a lot more room for even more of that diversity. You can imagine where I come out on immigration issues, for sure.

GamesBeat: Some of it looked like it also came from your 9/11 experience, driving across the country. (Bach was in New York when the twin towers fell. He had to drive across the country with colleagues to get back to Seattle).

Bach: That experience had a huge impact on me. I sort of understood, at the time I wrote that little journal while we were riding — I think you see in that some of the elements of how much impact it had. As time has passed it’s had even more impact.

The other part is, someone in my family did a bit of research and discovered that my family came to the United States in 1850 from Luxembourg. You start to realize the different influences. My mom is Irish and French. You start understanding your origins and realize that being American is in many respects a combination of lots of other things. That’s powerful.

GamesBeat: What comes next for you?

Bach: I’ll expand the work I’m doing in public speaking. I do a fair amount with companies and I’ll do more of that. I’m doing quite a bit in universities, business schools and undergraduate schools. I taught a class last semester at the University of North Carolina, which I really enjoyed. There will be continued speaking and spreading that word, continued blogging.

I’ll almost certainly write another book. Right now I’m taking a break to focus on blogging and speaking and helping get this book up to scale, but about the turn of the year I’ll sit down to decide what I want to write about next. It’ll have something to do with the civic engineering path I’m on.

GamesBeat: Handing the reins over to Don Mattrick, how do you feel about that now, as opposed to then?

Bach: I felt great about handing the reins to Don. He had more experience in the industry than I did. He was eminently qualified to do the work. He was running the team for at least the last two years when he was working for me. Really, all that happened when I left was Don went to work for Steve.

That was, in some ways, the easiest of the handoffs I had to make. By the time we got to 2010 I was running about six or seven businesses. A couple were obvious as far as how the handoff would work and we made those right away. Others, we had to work through them over the last six months I was there.

GamesBeat: How about Kinect and the future of that technology?

Bach: It’ll be interesting to see where that goes. I am a believer in the idea that voice and video — especially if you extend that into augmented and virtual reality — are powerful. The challenge everyone’s struggling with, including the Kinect folks and the AR and VR folks, is how you commercialize it.

The example we talked about earlier, about touch — Touch was around for a long time before the iPhone. It took a certain set of things coming together to commercialize that in a way that made it mainstream. So how do all these new interaction modes — cameras, voice, touch, motion, AR and VR — get commercialized in a way that creates one of those special customer experiences?

Right now I don’t think anyone’s gotten it. Kinect creates some wonderful experiences, but it’s not all the way there. It’s a great product and a great innovation, a great step forward, but there’s more work to do. The stuff I’ve seen on AR and VR has real promise, but if you said it was a mainstream technology right this minute, I don’t think most people would agree.

Those are all good areas. I love the work we did on Kinect. I think it was ground-breaking. The team will carry that forward in other ways. There’s a lot of life to it.

GamesBeat: What do you think about the process of getting Bungie out of Microsoft and how things worked out there?

Bach: In the end what you have to say is, everything worked out well. In some ways the process — who knows what the right process was? I don’t know that there’s an easy right or wrong way to do something like that. But in the end the Bungie team is happy and doing great things. Microsoft has Halo, a great thing for Microsoft. 343 continues to do a great job with that franchise. It’s hard to think that anybody came out bad.

The lesson you have to take away from it is that managing creative talent is hard. It’s challenging. Don’t just look at Bungie. There’s a litany all through the game industry of creative teams that become part of big organizations, and it’s good for a period of time, but then there are challenges and people think of new ways to keep people engaged. Sometimes that means people go off to create another company. Sometimes it means you spin out the company. There are lots of ways to deal with that. It’s not just true in the video game space. Look at movies and TV and music. They’re littered with examples of how you figure that out.

When it’s all said and done, everybody came out pretty happy. That’s a good thing.

GamesBeat: How about the launch of the Xbox One and where it is now?

Bach: The thing you have to remember about the Xbox One launch, independent of whether it got off to the perfect start — as we all know, the first year isn’t the most important year. What happens in years two, three, and four set the stage for the future. We’re in the middle of that right now.

If I look at the marketplace, PlayStation 4 and Xbox One are both selling more units than any console has at this stage of its life previously. The market is doing very well. Now the consoles are going to take a backseat to the games. The environment, the system that produces the best games and online experiences, will ultimately win. That’s not news. That’s not brilliant insight. It’s the way the game industry has been for 30 years.

This holiday will be an important one for Microsoft, with Halo and Forza and a number of other big titles, and certainly an important one for Sony, because they want to sustain their lead.

GamesBeat: What do you think of Microsoft under Satya Nadella?

Bach: Satya’s doing great work. Different leaders are required for different times. I loved the work Steve did. He was a great boss. He did amazing things for Microsoft. Satya has carried that on in a different way, but he’s doing what’s best for the company given the strategic challenges they face today, the cultural things he’s trying to implement and drive in the company. People in the company are responding.

The story’s not written. Who knows what’s going to happen in the next five years? But certainly you have to say the first steps were all good ones. Now it’s up to whether the products deliver or not.

GamesBeat: What are your thoughts so far on how the presidential campaign is going? Are any candidates interesting to you?

Bach: [chuckles] It’s a tale of two cities. On the Republican side, it’s like going to a concert and seeing a mosh pit and trying to figure out who’s going to come out. My guess is, there will be four or five candidates that will fall by the wayside just because they’re not mainstream electable. There will be another four or five candidates who will end up surviving that mosh pit phase and continue toward the primaries with enough funding to carry on a serious campaign. Once the wheat and the chaff get separated, you have some serious candidates.

On the Democratic side, you’d say they have an advantage because of demographics across the country. And yet you look at the two candidates running and, well, one of them might not be electable. People are, for a variety of reasons, somewhat ambivalent about Hillary. So they have a different problem. They have a good market situation to work with, but it’s not clear yet how that’s going to shape up in to a leader who can galvanize people to win an election.

It’s September, though. We have a ways to go. The fact that we’re spending this much time on it now sort of bugs me. As a civic engineer, it’s not the right way to run the ship.

GamesBeat: That’s what I wondered, whether you felt like your civic engineering agenda is going to get addressed.

Bach: If you read the book, you’ll note that election reform is not in my top five priorities. It’s number six. What can I say? We have to clean up one of those other priorities first.

GamesBeat: We have Donald Trump in there. In that environment, it seems like it’s hard to have a discussion about the things that you think really matter. I’m not optimistic that your agenda will get addressed given the way things are right now.

Bach: The reality is, my agenda may not get addressed regardless of Donald Trump. The political process doesn’t always inform Americans about their choices in a way that we would like. Donald Trump is a bit of a provocateur. I don’t think he’ll be one of the people that survives deep into the primary season, but who knows? His ideas will get him into trouble at some point, let’s put it that way.

Having said that, he’s gotten a lot of attention because he says what he thinks. He’s one of the few candidates who’s actually saying what he thinks. People are giving him credit for that. Once they evaluate what he thinks [nervous laughter] that may change his position in the polls and where things shake out.

GamesBeat: Do you think Microsoft should introduce an Xboy (an Xbox rival to the Nintendo GameBoy) one day?

Bach: [big laughs] Oh, my. All those things are in the past. As it turns out, we made the right decision at the time.

GamesBeat: Have you ever had an Xbox reunion, a time to reminisce on these things?

Bach: There was an email on the 10-year anniversary of Xbox Live that went around. I don’t know if the whole group actually got together. I think some small groups did. I was just at the 20th anniversary of Windows 95, so maybe in 2021 we’ll have to get the Xbox team together. I get together with individuals and small groups from the team with some frequency. We do a little bit of reminiscing and then mostly just catch up on our personal lives. When you work on something like this, you get to know people personally.

GamesBeat: Are you doing a lot more speaking still?

Bach: I am. Some of it is pro bono out of the gate. I’ll go and guest lecture at a university. The things I get paid for, that money ends up going to charity in any event. If the book gets to enough scale and makes some money, that will go to charity as well. I do it as part of my civic engineering agenda, and I enjoy it.