They did the right thing in how they dealt with it- but now find out why.
The Xbox 360 was basically the perfect console when it launched, but it had one giant mark over it that kept on coming up in any discussions about the machine- the machine’s sheer unreliability, which led to all sorts of hardware failures indicated by three of the four indicator lights on the console flashing red, led to the rise of the infamous red ring of death, which basically came to mean any hardware failure on the console.
The statistics were ridiculous- over half the Xbox 360 units being shipped were defective, and would fail within six months. This, coupled with Microsoft’s at the time poor warranty, which covered the hardware for only 90 days, led to one of the costliest moves Microsoft ever made- to fix the situation, they announced a $1.1 billion program, to cover an unprecedented repair offer that meant affected customers would get a fixed Xbox 360 as quickly as possible while extending the console’s warranty to three years. The offer would retroactively apply too- basically, it was the perfect fix to a messy problem.
“We were seeing failure rates and starting to get reports through customer service,” Moore said.
“This was a thing where we couldn’t actually figure out what was going on.
“We knew we had a problem. I remember going to Robbie Bach, my boss, and saying, I think we could have a billion dollar problem here. As we started to do the analysis of what was going on, we were getting the defectors in, it was a challenging problem for our engineers, and we couldn’t quite figure out what it was. We knew it was heat related. There were all kinds of fixes. I remember people putting wet towels around the box.”
Continued analyses and diagnoses of the problem demonstrated that the problem was serious and would need to be fixed- not least because it was becoming a serious PR and image problem for the company. But the question was those $1.15 billion that he would need to resolve it.
“I calculated with my finance team, Dennis Durkin (now the Chief Financial Officer of Activision), Doug Ralphs (then Senior Director of Finance at Microsoft’s Interactive Entertainment Division)… $1.15bn, right out there. I always remember $240m of that was FedEx. Their stock must have gone through the roof for the next two weeks.
“And, I am trembling sat in front of Steve, who I love to death, but he can be an intimidating human being. Steve said, ‘okay, talk me through this.’ I said, ‘if we don’t do this, this brand is dead. This is a Tylenol moment.’
“Steve looked at me and said, ‘what have we got to do?’ I said, ‘we’ve got to take them all back, and we’ve got to do this in a first class way,’ because when you take a console away from a gamer, and you’re going to spend three weeks fixing it… so we’ve got to FedEx this all the way. We’ve got to FedEx this all the way. We’ve got to overnight it back in two.
“He said, ‘what’s it going to cost?’ I remember taking a deep breath, looking at Robbie, and saying, ‘we think it’s $1.15bn, Steve.’ He said, ‘do it.’ There was no hesitation.”
He continues, musing on how the reason the Xbox brand exists is because of that one moment.
“I’ll never forget that moment,” he said. “If you’re an Xbox gamer, you can thank Steve Ballmer for not even hesitating. Now, we were a wealthy company who could afford to do that, but not even hesitating because the brand was more important.
“If we hadn’t made that decision there and then, and tried to fudge over this problem, then the Xbox brand and Xbox One wouldn’t exist today.”
So… yes. The most costly mistake Xbox ever made, but at least they learned from it. The Xbox 360 Slim hardware revision that was released shortly afterward was rock solid, and the Xbox One has no such issues.