Early DirectXBOX Stories

Since the launch of the XBOX ONE is such a popular subject this week, I thought I might tell an amusing XBOX story or two.  I’m getting a little ahead of my planned blogging material here as this story starts in the early WildTangent years, which I haven’t talked about previously.  Suffice it to say that WildTangent was founded in the shadow of Microsoft’s failed attempt to launch a DirectX powered version of IE called… ChromeEffects… yes, same name as Google’s Chrome but Microsoft liked the name first but concluded that “Chrome” wasn’t trademarkable.  I had been “called out” of my self-imposed retirement to help my DirectX collegues, Eric Engstrom and Craig Eisler launch a DirectX turbo charged browser designed to wipe Netscape off the map.  The effort was scuttled by the DOJ investigation into Microsoft’s “anti-competitive” practices… hard to believe, I know… When Microsoft opened their shiny new XBOX campus right next door to our WildTangent offices a couple years later, our people used to go over to the Microsoft XBOX campus to have lunch in the cafeteria.

At the time I was trying to raise a round of Venture Capital to fund WildTangent and for some reason Sony found us particularly appealing.  Shortly after leading a 34Million dollar investment round in WildTangent they asked if I would meet with their PS/3 Chief Technology Officer, Okamoto Shinichi, who had also been the chief architect of the PS/2.  Okamoto flew into Redmond from Japan and was very inquisitive about my thoughts on Microsoft’s foray into the console market.  I took him to lunch at the XBOX campus and showed him around.  Of course he was stunned that this was possible, which was part of the humor value of doing it.  I told Okamoto that although Microsoft was certainly prone to missteps along the way they were extremely tenacious and would not be easily deterred by a few early failures.  He asked me what I thought Microsoft’s play would be in space.  I told him that if Microsoft was smart and they often were, they would define the XBOX around online gaming.   They would link it intimately to the PC gaming experience and instead of trying to compete with the likes of Nintendo and Sony on 3D production values they would focus on online gaming and services.  I told him that creating unified network platforms was their strength and they would use that to beat the Japanese console makers by avoiding the costly and failure prone console generation leaps that had traditionally been the downfall of other great console makers like SEGA and Nintendo.  Okamoto retuned to Sony and shortly thereafter resigned.  Before he left Redmond he confided in me that he had severe doubts that Sony would be able to adapt to an OS driven online console world, he felt that Sony’s focus on the highly proprietary and costly Cell architecture was misguided and make porting Linux and creating networking API layers for the PS/4 unnecessarily cumbersome.

http://www.gamespot.com/news/okamoto-sce-broadband-architect-resigns-6074447

Shortly thereafter a Sony VP of Online services contacted me for advice on how to build a successful online gaming service.  I laid out a detailed roadmap for him on what Sony needed to do to be successful in that area.  After I had finished he asked me if I was concerned that if Sony followed my advice they would be competing with me.  I told him I was not worried at all, in fact I hoped they were wildly successful at taking my advice because it would put them out of the console business forever.  After a stunned silence he asked me why and I said to him that the minute consoles went fully online their entire eco-system and reason for existence would cease.  A traditional console is just an expensive DRM device to prevent game piracy, when games move to online community centric models they no longer need a console to protect them from theft.  More companies like Blizzard would realize that they didn’t need a console to manufacture and market CD’s for them when they could sell directly to consumers themselves. The whole console business only existed because prior to the Internet the only viable channel for game publishing had been the retail market.  Why would Walmart sell PlayStations at no margin if they couldn’t participate in the high margin game revenues?

In retrospect it’s interesting to note that I wasn’t completely right, although I still believe that I should have been.  Microsoft’s internal politics and facetiousness had an interesting influence on what actually happened.  The success of DirectX had brought the first real gamers INTO Microsoft where they had a tremendous positive influence on Microsoft’s gaming strategy.  I credit Kevin Bacchus, Seamus Blackley and Stuart Moulder for introducing Microsoft to its first true gamer culture.  They teamed up well with some of Microsoft’s platform geeks who happened to love gaming like Ed Fries, Jay Allard, Jason Robar and of course the early DirectX engineers to create the early XBOX strategy, but they also encountered Microsoft’s boring Enterprise culture and politics.  In the end, I suspect they choose isolation from the influence of these forces over good strategy and ended up isolating themselves on a remote campus and working hard to separate their efforts from the rest of Microsoft’s boring Windows-centric enterprise culture, to the great detriment of PC gaming support.  The result was that the second generation XBOX 360 looked more like a traditional Japanese game console offering then an ambitious foray into online gaming that it should have been.  People often forget that Microsoft had a huge investment in creating early MMOG’s in the pre-World-of-Warcraft era.  To Microsoft’s credit, they executed the XBOX 360 strategy very well and won the console market in spite of their lack of a strong focus on online gaming.

The interesting result was that even as the XBOX 360 thrived, a multi-billion dollar industry grew up in the Seattle area around ex-Microsoft founded online PC game publishers like RealNetworks, Valve and of course WildTangent.  This lack of a unified platform strategy was also responsible for the birth of the most profitable video game in history, which of course has never been ported to any console… World of Warcraft.  This lack of successful unification of XBOX and PC gaming was the moment when Microsoft LOST to Apple by leaving the market open to an online console like app market on consumer PC’s.  Early DirectX and XBOX pioneers all left Microsoft over time to join WildTangent, Valve, Blizzard and RealNetworks in part because they believed in the online market that Microsoft, strangely, was slow to fully embrace.

Today Apple has brilliantly defined what a pure online game console business should look like.  They solved the business model problem by opening their own retail stores and selling their own devices, thereby ensuring that Walmart would not be able to take their business hostage and demand a share of the game revenues.  Apple also did such a brilliant job of productizing and marketing their hardware that they were, unlike classical consoles, able to sell the physical devices at a huge profit again mollifying classical retailers by giving them a way to profit from the business without getting a cut of the very high margin content sales… genius…

First DirectX engineer Craig Eisler enjoying a cigar at Eric Engstrom’s secret laboratory somewhere in Redmond.

My assessment of the XBOX ONE is that it will win the next generation console wars… such as they are… hands down.  It was smart of Microsoft to re-adopt a PC platform… and a huge statement about the expensive lesson Sony learned from Microsoft that even Sony abandoned a proprietary architecture in favor of a PC one for their next generation PS/4.  This is was an extremely un-Japanese decision and a strong testament about the hard lessons Sony learned from competing with Microsoft.  The guy responsible for the online service component of XBOX ONE is Craig Eisler, the guy who wrote the very first DirectX API’s and produced Microsoft’s streaming media servers.  If I were Sony, I’d be terrified of what an engineer like Craig Eisler, now a Microsoft exec, years later will bring to bear against them in online services.  I hope that despite anchoring the XBOX ONE with a lot of classical console technology baggage (Blue-Ray, HD, lots of ports, immobility) Microsoft will place it’s focus on the online service experience and make whatever sacrifices are necessary to the retail business to ensure the services success.

Regrettably I believe that the likes of Sony and Nintendo are no longer formidable competitors for the living room because I believe the era of the TV tethered console has passed.  My real concern for the XBOX ONE is that it is not a good answer to the elegantly designed and highly mobile IPad and Apple App Store.  I believe that Apple is the real competitor to the XBOX ONE and based on my first impressions of the XBOX ONE, it is not well positioned to compete.  The “Next Generation” of gamers don’t hang out in the living room to consume media.

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