Microsoft Gets It, at least XBox Live

How often have you read "Microsoft Gets It" in the technology press?  Well, they’re writing that about Xbox Live.  Microsoft is currently out-innovating and outselling Sony and Nintendo (and hell, even Apple) in this field of connected entertainment.

While I didn’t ever directly work on Xbox live, I feel like a founding father of sorts.  I have the great honor of founding Microsoft’s internet gaming effort in early 1996, and I planted many of the seeds for what would become Xbox Live.  The Internet Gaming team that I formed and led created Microsoft’s first matchmaking meeting space on the Internet, and introduced all of Microsoft’s v1.0 concepts around online matchmaking, score-management, online chat, tournament play, avatars and more, all more than a decade ago.  This gave Microsoft a terrific head-start in both operational knowledge and design knowledge, which I think has been pretty helpful in delivering its next-generation Xbox Live.

The story’s a long one, but I’ll try to make it brief.

I joined the games group in late 1995 from the CD-ROM division at Microsoft.  I’m not too much of a gamer, but I was very interested making a career transition from marketing to being more central to technology planning and development.  That is, in Microsoft-speak, moving from a lead product planning role to a group program management role.  The opportunity arose in Games, and I thought there were some interesting technical challenges there, and that I could both learn, and try to contribute there.  I also thought that games might be a great mixture of Hollywood and Silicon Valley.  That part was all true.  But it didn’t make me a gamer.  To this day, I’ve never owned a game console, and I hope to keep it that way, much as I enjoy playing them.

When I joined the games group, it was a very opportunistic set of products (MS Golf, Flight Simulator, and a pretty mediocre game for Windows 95 that was being worked on called "Hover", as well as an online Chess game being written for the non-TCP/IP, proprietary MSN 1.0 platform.)  Then there were the joint venture activities with Dreamworks SKG/Dreamworks Interactive.  Quite frankly, it all struck me as a pretty haphazard bunch of unrelated projects. 

The FlightSim group was generating strong and consistent revenue growth, and the games GM at the time had a strong plan to bring the third-party developers behind FlightSim and Golf in-house.  Good call.  As 1996 continued, I was struck by how the Internet could be used to create a matchmaking ground, and perhaps could be used to bring some unity and coherence to the titles.

When Bill Gates’ "Internet Tidal Wave" (.PDF) memo came out in May of 1996, it was a defining moment in the company, and each of us in our groups thought long and hard about what the Internet meant for our businesses.

At the time, I was a lead program manager for the Action & Strategy products at Microsoft (Fury3, Age of Empires, Close Combat and a few other titles).  I wrote a paper summarizing where I thought Microsoft should go in online gaming, and it quickly got Bill’s attention, as well as Rick Rashid, Patty Stonesifer, Nathan Mhyrvold and others in the company. 

I felt strongly that an online gaming platform was needed that provided matchmaking services, a place for people to meet to start games, avatars (later called "GamerTags"), share scores, and socialize.  I wrote that it was inevitable that whoever built such a place could monetize the platform through advertising, subscription revenues and add-on sales (both of entire games — download to purchase — as well as game add-ons).  Low-latency gaming was also something we looked at, but eventually decided against building (or acquiring) a large network.

This period of my life also included the single worst business meeting of my life.

Now, through my seven years at Microsoft, I was fortunate enough to participate in dozen or so meetings with Bill Gates.  And despite the reputation that Bill and Steve Ballmer both have in being difficult and abrasive in meetings sometimes, I can report that every single one of them was a very positive experience. 

However, my absolute low-point ever at Microsoft was when Nathan Mhyrvold, then leading advanced research activities for the company, stopped by to hear a presentation about our online games strategy.  Nathan has a well-earned reputation for sparks of sheer brilliance, but sometimes obtuse comments and just plain wrong-headedness.  For instance, there is a famous email exchange in which Mhyrvold tries to tank one effort inside Microsoft because, economically, it was based on taking a "vig" on each transaction, and that "no one can sustain a margin with that kind of business".  Far better, he argued, was investing heavily to create original content, like Disney.  The two products he was comparing?  Well, the one he wanted to kill became Expedia (built on transactions, later to go on to create over $8 billion in market cap and establish clear leadership in the online travel world), and the one he was championing was Slate (a noteworthy, perhaps even notable effort still but struggling to deliver a solid ROI). 

One former senior Microsoft executive summarized Mhyrvold this way: "Meeting with Nathan is just like smoking pot.  When you’re in it, you feel really smart, but at the end, you sometimes don’t really know what was said."

Back to my meeting with Nathan in the spring of ’96.  I had been on the job of building the online games business for Microsoft for only a couple weeks, and admittedly, I was still struggling for the right metaphor for the business model that would emerge.  I stumbled through a few points, drawing an analogy between what we were trying to build and increasingly narrowcast television channels — one for casual games, one for action games, etc.  The strategy was to build a platform where people can meet each other to play games, upload high scores, exchange voice chat, buy game add-ons, etc.   Mhyrvold peppered me with a few questions, several of which I didn’t even understand.  He later wrote a blistering memo (published to the whole company) about how group managers need to be better prepared, and drew on several incidents from that infamous meeting.   

I feel less bad about my performance, and was buoyed by Bill Gates’ comments to me at the end of a product review just six months later on the Internet gaming effort that Microsoft’s purchase of Electric Gravity was extremely inexpensive compared to what we got out of it.  Bill said it was a great purchase, perhaps one of Microsoft’s best in terms of Return on Investment, and I agree.  (I’m not at liberty to disclose what we paid for our purchase, but it pales in comparison to nearly all other Microsoft buyouts.)

Today, thanks to the great creative team that build it, the MSN Gaming Zone is the Internet’s largest place to play games, and a strategic asset for Microsoft that will allow it to extend into the living room.  I saw Charlotte Guyman (the former VP that I reported into for a few years at MSFT) at a coffee shop recently, and she told my wife, who she had met for the first time, that I was the guy who "saved Microsoft’s games group".  That’s a huge complement, but also I fear a huge exaggeration.  I definitely think I put some significant english on the ball at a critical time, but I wasn’t the prime player.  I do think I helped Microsoft think much more strategically about games, publishing, and developer relations, however, as well as lay out a solid version 1.0 effort in what would soon become the largest online game site in the world.  I did this primarily by pointing out some pretty obvious conclusions about how platforms play to Microsoft’s strengths, and Microsoft needed to either create a comprehensive platform for gaming, or exit the business.  Luckily for all of us, they chose the former.

The Arena* project that I led with a team of people from ’95-97 established many of the key platform and matchmaking concepts that have now been implemented and improved in XBox Live.  And I’m extremely gratified by the sense that in this area at least, the press is starting to recognize that Microsoft Gets It.  I’d argue that in online gaming, Microsoft gets it better than any other entity in the world.  Better than Sony, Apple, Linux, and all the other albatrosses Microsoft has had to tackle from a standing start.   XBox Live is laying a foundation for many more important services to come.

So, in addition to trying to set the record straight, I guess the purpose of my post is — don’t let people’s reputation or negative feedback sway you.  Sometimes, they’re just plain wrong and don’t have the full context.  Make it happen.

*"Arena" was the codename we coined  in 1995 for this project (it’s a place people go to play and watch games).  Arena launched as the "Internet Gaming Zone" in 1996.  The Zone was the first Web-based multiplayer matchmaking space, and now has millions of players from around the world.

4 thoughts to “Microsoft Gets It, at least XBox Live”

  1. Hey Steve…Do you remember the games testing temp employee at MS Red West in 1996 who said that “Arena” was a good name for a place to play sports games but not for computer games? It was me.
    I said that when people played computer games, they wanted to be in a zone and I suggested “Zone” as the replacement name. You thought about it, and the next day we had a small staff meeting wherein you announced the name change and thanked me for my input. (I still have the souvenir glass with the “Arena” name and symbol on it.)
    Although I don’t have anything to do with the computer business now, I believe that you and I, for historical reasons, deserve credit for attaching the name “Zone” to MS’s Internet Gaming Zone. For me, it’s my 15 seconds of fame(?) in digital history. Thanks for taking up my idea.

  2. I remember you Bob! I also remember the conversation.
    But just to give credit where it’s due, Kevin Binkley and Hoon Im, who started Electric Gravity, first created the name “Internet Gaming Zone”. As you remember, we bought their company and Kevin & Hoon were very important members of the team. They brought with them the very cool Internet Gaming Zone with the Village, and, of course, the URL

  3. Oh, OK, let’s adjust my digital gaming fame time to .015 seconds. I believe it’s justified simply by my confirming that brilliant minds do think alike.

  4. I agree Bob — you were definitely right about this.
    Just clarifying that the actual name itself was available to us. Come to think of it, you may have mentioned this BEFORE we ever began conversations with the folks!

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