Much of the analysis of Microsoft in the era of outgoing chief executive Steve Ballmer comes with one caveat: “except for the Xbox.”
For Microsoft, the Xbox has been a delightful anomaly. It’s successful hardware manufactured in-house. It’s recovered from missteps without missing a beat. And it represents one of the key times when Microsoft has been in the right place, at the right time, with the right targets in mind.
Microsoft’s Xbox first came onto the scene 12 years ago, at a time when Sony and its PlayStation 2 seemed unstoppable. And there was no more unlikely player in the gaming world — even then Microsoft seemed like a lumbering giant that wouldn’t be able to get a foothold in a new market, let alone one as cool as gaming.
Much of the console’s success, said Forrester analyst James McQuivey, can be attributed to the fact that the Xbox team was more or less left to run as a startup within Microsoft.
“It was benign neglect,” McQuivey said. “That was very helpful to the Xbox team because even though you couldn’t get any credit for things in the organization...the inverse of that is that no one could come in and look into your politics.”
That independence of being ignored also insulated the Xbox team from being called to account for mistakes— most notably the widespread “red ring of death” manufacturing error on the Xbox 360, which locked machines up completely and hasn’t done much to hurt the Xbox brand.
Perhaps most important, left to its own devices, the Xbox team was free to try risky things, such as pursuing a strategy that helped it champion the idea of what would become a major shift in the gaming world — the connected console.
The tipping point, McQuivey said, came when Microsoft was the first to sew up a partnership with Netflix for the Xbox 360 and made the game console about entertainment rather than gaming.
“That showed that you could spend two hours a day with a console instead of one,” McQuivey said. “You couldn’t spend billions of dollars on ads to make that happen.”
With the Xbox, Microsoft has also been smart about walking the line between openness and exclusivity, by courting game developers but also making sure it keeps strong franchises — notably the Halo series — as exclusives to lure consumers. Even if consumers have a competing console, many also own an Xbox in order to get access to those titles, McQuivey said.
All of that led to Xbox’s success. Microsoft reported earlier this month that, as of July, the Xbox 360 spent its 31st consecutive month on top of the U.S. market. And its vision of extending the Xbox beyond the console continues more than ever in the forthcoming Xbox One.
While that console has gotten off to a rocky start thanks to some public missteps, the Xbox One may be the best embodiment of the “One Microsoft” strategy that outgoing chief executive Ballmer introduced in July. It works with mobile devices, runs Microsoft’s Skype service and, through partnerships with content providers such as the NFL, makes a play to be the center of your living room entertainment.
“The next step they have to go for is to make a reach for three hours a day instead of two,” McQuivey said. “It would make Microsoft relevant at the point where that Microsoft Office and Windows gravy train is starting to dry up.”
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