The DeanBeat: Microsoft goes crazy with its appointment of new gaming chief

It could quite possibly be the dumbest move Microsoft has ever made in games. Or the smartest.

Yesterday, Microsoft appointed Julie Larson-Green, head of the Windows business, to be in charge of several divisions including Xbox. She does not have game business experience, but she will run a business that recently had its head handed to it in a gamer-led rebellion after Microsoft tried to curb consumer rights on used game sales for the upcoming Xbox One video game console. Whether this promotion is a wise decision or not will depend on the outcome of how Microsoft serves its twin constituencies of gamers and non-gamers on the Xbox platform.

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The appointment became necessary after Don Mattrick, president of the Interactive Entertainment Business, left last week to become the CEO of social gaming firm Zynga. Mattrick had decades of experience in gaming, and his shoes were not easy to fill. Microsoft chose not to promote one of his own lieutenants upward and instead gave Larson-Green more responsibilities beyond the core Windows business.

The new management structure represents a risky strategy. Microsoft has a non-gamer CEO in Steve Ballmer, who has historically relied on game-focused experts to call the shots in the Xbox division. By contrast, Sony now has game executives running its entire company. Chief executive Kaz Hirai ran the Sony gaming in North America for many years and was also in charge of all things PlayStation. His former lieutenant, Andrew House, is now in charge of Sony Computer Entertainment. Game veteran Jack Tretton runs the North American games business. Mark Cerny, with three decades of experience in this field, is the lead architect of the PlayStation 4 that will be launched this fall.

Sony’s whole approach to this next generation has been to double-down on the hardcore market. As Cerny explained, the architecture of the PS4 is designed to make life easier for game developers. He was able to articulate all of the decisions that Sony made that will benefit the medium. That was also the message Hirai sent when he played down the idea of the “media hub.”

“I fundamentally believe that the initial market that we need to make sure we appeal to with any new platform … is really the gaming audience,” Hirai said. “They will be the supporters of your platform, and they will help propel the installed base.”

Larson-Green will have support from seasoned game executives including Marc Whitten (chief Xbox product officer), Phil Harrison (corporate vice president), Todd Holmdahl (hardware chief), and Phil Spencer (studio chief). Aaron Greenberg will serve as chief of staff for her. But Larson-Green will call the shots.

There are scenarios where Larson-Green’s appointment could be brilliant, and that these perceived weaknesses will in fact be strengths. The presence of too much testosterone at game companies has held the industry back from reaching bigger mass markets in the past. More so than with any other generation, the time is ripe for Microsoft to promote the Xbox as the only set-top device you’ll need in your living room to handle your entertainment including games, music, television, movies, and communication.

Ballmer said in a call yesterday that the company does not want balkanized businesses where executives focus on “my resources and my business.” Microsoft has suffered from that for many years, and it has sometimes hurt the Xbox business. Microsoft will design products that work across PCs, Surface tablets, Windows Phone devices, and Xbox Ones. That is reflected in the Xbox One’s design, which has features such as SmartGlass support from mobile devices that deliver useful data to gamers. Microsoft also designed its Xbox One, which has three concurrent operating systems, to switch between applications quickly using voice controls from the Kinect sensors. You can use Skype at the same time you are playing a game, for example.

If Larson-Green (who industry sources have told me is “smart and very well liked”) fosters the non-gaming audience, enabling Microsoft to knock cable set-top boxes out of the living room with its all-in-one approach or do battle with the Rokus of the world, then Microsoft could get access to a much larger audience. It could fulfill the original dream of the Trojan Horse, where the console is brought into the home by gamers and then takes over all of the other living room functions. Sometimes that plan has seemed smart, and sometimes it has gotten in the way of good game decisions.

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It is worth nothing that the gamer/non-gamer divide is fraught with contradictions and that game executives don’t always make the best decisions. The addition of broader non-game entertainment to Xbox Live is one reason why its membership has grown to 50 million, and it is running circles around Sony in that regard. And Microsoft’s former top studio executive, Ed Fries, proved it was possible to move over from a good career in Microsoft Office to running the game business. Fries built the division from a joke to something that could sustain a home console before he left nearly a decade ago. That was a case where valuing “intelligence and attitude over knowledge and experience” paid off for Microsoft, said Kevin Bachus, one of the original Xbox co-creators.

Mattrick, who had years of game experience, made the bad decisions to curtail used game sales, require a once-a-day online connection, and leave the issue of privacy unaddressed. The gamers revolted so heavily that Microsoft had to reverse itself. He also priced the Xbox One at $499, leaving Sony with the opening to sell the PS4 for $399.

But the risks remain. Microsoft can’t afford to make missteps with the hardcore market, since it will be selling head-to-head against Sony this fall. Tim Chang, a partner at Mayfield Fund, said that Microsoft needs to rebuild support with developers and overcome the impression that the “Xbox ecosystem ain’t open anymore.”

Larson-Green will need to develop an immediate intuition for what is good for both gamers and non-gamers, and what is good for neither. When she makes decisions about what goes into the product and what doesn’t, she will receive direct scrutiny from millions of fans who will have the option of going somewhere else for $100 cheaper. Chang would like to see “fresh thinking and radical risk-taking” rather than an “iterative mentality” that produces simple “window dressing” improvements.

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Microsoft wasted a lot of time in the past when cofounder Bill Gates wanted to jam Windows down the throats of gamers, as he wanted the Xbox team to run a version of Windows in the original Xbox. The Xbox group fought back and won the argument, but it probably lost time and political points as it did so. Sony has probably had similar discussions as its game executives fend off suggestions from 3D TV advocates or Sony Music executives.

If Larson-Green is smart and makes the right choices, she’ll take Xbox further than Mattrick did.

If she doesn’t, her leadership will be a disaster, Sony will make the most of it, and another gamer rebellion will be inevitable.