Main reason Microsoft started Xbox was to stop Sony

February 9, 2013

Main reason Microsoft started Xbox was to stop SonyA former Microsoft senior executive broke his silence on some of the age old secrets behind the OS giant revealing the main reason the company got into the video game business. Joachim Kempin, a former senior vice president who was responsible for the sales of the Windows operating system tells all in his new book titled, “Resolve and Fortitude: Microsoft’s “SECRET POWER BROKER.”  

I don’t think it’s a secret that Microsoft really entered the video game console space to stop Sony from taking over the living room. This has been rumored to be the main reason for the launch of the Xbox despite strong opposition from the board and senior management at the company. There is a general belief, that while on the face of things Microsoft is bullish about its Xbox business, there has always been internal strife within the organization to dump the division to focus on Windows and Microsoft Office.

Kempin was apparently opposed to entering the video game console market fearing that the company would have to sustain huge losses made on hardware manufacturing considering Microsoft is a software company relying on high profit margins. This is still the case today as the profit margin on each Xbox manufactured is peanuts in comparison to something like Windows or Office.

In an interview with IGN, he stated:

I went out to several PC manufacturers and tried to beg them to do the Xbox thing and keep the device manufacturing out of Microsoft. The guys were smart enough not to bite, because they studied the Sony model and saw that Sony could not make money on that hardware model, ever. So they supplemented it with software royalties, and Microsoft copied that model.

Kempin indicated that Microsoft was never really able to replicate how Sony was able to supplement its PlayStation division with software profits from its games as the company could only rely on the Halo franchise, so they turned to services eventually.

Microsoft is the only company that charges a subscription fee to play online via Xbox Live and have gated many of the services such as Netflix, Hulu and even video game demos behind a pay gate.

First, every developer who now has an Xbox game pays a small royalty to Microsoft for the honour of having it on that system. The other way they make money is that they finally got their act together on the services and actually that’s where the money is being made. So they’re just maybe a little bit above breakeven, that’s all there is. This is not a big money-making machine for Microsoft.

He also stated that the decision came from Bill Gates at the time to stop Sony as he felt that the future of the PC could be in the living room. With Sony dominating the living room, Gates felt that Sony could put Microsoft out of the Windows business. According to Kempin, Gates strongly believed that the living room console would eventually metamorphosis into an alternative PC.

While this clearly did not happen (yet), Microsoft did miss the boat on the transformation we have witnessed with personal portable computers in the form of smartphones and tablets.

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16 Responses to “Main reason Microsoft started Xbox was to stop Sony”

  1. Godless:

    Mike. . .I wasn’t going to bother responding to this to start with, because. . .well just because.

    “Gates strongly believed that the living room console would eventually metamorphosis into an alternative PC.

    While this clearly did not happen (yet),

    WHAT!
    SO the 360 and the PS3 don’t offer most people a cheep viable alternative to a multimedia PC??? WTF how can you say that.

    “Microsoft did miss the boat on the transformation we have witnessed with personal portable computers in the form of smartphones and tablets.”

    MS has missed the boat to some degree, but the truth is they still dominate the PC and laptop side of things by a huge margin. It will only be a matter of time till users switch to the windows tablet because once the Apple fad falls on its arse people will go back to a platform that actually does all the stuff you want it to do properly.

    If linux ever gets it’s act together, I can see it being a huge threat to MS, but it’s just never going to happen, I’ve been hoping for the last 15 years linux would get somewhere, and it just never has, and without some major kick in the arse, it looks like it never will.

  2. MAK:

    Has anyone else realized that all the recent articles have been coming from the comments section of the previous article?

    For example, Roca will leave a link or something that’s off topic in the comments section.
    Then the next day, we will see an article on here based on that comment.

    Its a repeated read.

  3. CarlB:

    “they finally got their act together on the services and actually that’s where the money is being made. So they’re just maybe a little bit above breakeven, that’s all there is. This is not a big money-making machine for Microsoft.”

    Sony has been in the business longer, but considering their standings now ($8B in debt, $1B+ losses for years), the above statement seems about right for them as well…

    “On the operating income side of things for the PlayStation, the division did post a profit but experienced a drop year over year of 86.4 percent from 33.8 billion yen down to 4.6 billion yen ($53 million dollars)” http://gamer.blorge.com/2013/02/08/ps3-ps2-takes-top-spot-with-6-8m-sold-in-q3-despite-dip-in-gaming-profit/comment-page-1/#comment-196202

    The entire Playstation division resulted in about ~$50M in “operating” profit (not net income profit) for Sony (for the quarter), which is still in the red for the fiscal year… even after things like PSN Pass and PSN Plus, it doesn’t seem to make much of a difference for them either, relatively speaking.

  4. gunstar:

    … and after the dust settles down… Micro$uck failed, failes now, and will fail and fail again!

  5. gunstar:

    And while they are so busy with a puny company like Sony, Apple and Google went under Micro$uck’s nose….

    M$ tried to grab every emerging market and Epic Failed at all of them!

    That is why they are called Micro$suck.

  6. gunstar:

    they suck at everything

    suck at pc gaming
    suck at console gaming
    suck at search
    suck at smartphones

  7. Roca.:

    “MS has missed the boat to some degree”

    Microsoft missed the boat (tablet/smartphone) entirely…MS has not been able to keep up with many new markets, has not done anything innovative over a decade.

    They missed many boats and let many other boat get way ahead of them:

    -Social
    -Tablet
    -Search
    -Smartphone
    -Online services
    -E-Commerce
    -Portable Gaming

  8. CaptBirdman:

    Gunstar, goddamn you’re a troll boy!

    “suck at pc gaming”

    Name an OS better than Windows for gaming. I’ll wait.

    (Don’t show your ignorance by mentioning Steam. Oh and I’m using a Mac to type this message, so, don’t even go there.)

  9. Mike Ferro:

    @godless,

    WHAT!
    SO the 360 and the PS3 don’t offer most people a cheep viable alternative to a multimedia PC??? WTF how can you say that.

    I think you misunderstood the context of that comment. According to Kempin, Gates believed that consoles would “transform” into a PC for the living room, which could impact future Windows business. I hardly think that game consoles are competing with Windows operating system and consoles have not evolved to a point where it can fully function as an alternative PC yet.

    It will only be a matter of time till users switch to the windows tablet because once the Apple fad falls on its arse people will go back to a platform that actually does all the stuff you want it to do properly.

    Have you tried Windows 8 yet? I nearly threw my new PC against the wall.

  10. gunstar:

    @Captain

    before I retort ….

    Micro$uck is the mother sucker of them all by sucking gullible gamers hard earned money

    now Cap…

    Have you ever heard of a sucky PC gaming service service called Games for Windows – Live?

    After the official announcement of Games for Windows – LIVE, many PC gamers were upset with Microsoft’s move to charge PC gamers a fee of $49.99 to use the service. Many PC gamers felt this move was unfair, as playing online and many of the other services GFWL offered has, for the most part, always been free on the PC.[37] Microsoft later began offering the service free of charge, after many complaints from PC gamers were made.

    After the announcement that the PC release of Dark Souls would use Games for Windows – LIVE, fans started up a petition to have the game released without the service attached. The online petition gained over 20,000 signatures in 5 days, reflecting a notable public dislike of the service among PC gamers.[38]

    Many Grand Theft Auto IV users who bought their game via Steam had trouble activating CD-keys in-game via the integrated Games for Windows Live client.[39]

    Games available on the Steam service that are also tied to GFWL will sometimes not launch at all without first signing into the GFWL Marketplace client. This is contrary to Microsoft’s stated approach of not controlling game access.

    In 2010, Microsoft updated the voice codec for Xbox Live. This effectively rendered voice chat nonfunctional in many games under the service, including Halo 2 for Windows Vista and Shadowrun. This has not been fixed yet and is effectively removing an officially advertised feature.

    So how low M$ sucks?

  11. gunstar:

    As the biggest software company in the world if M$ actually took care of PC gaming developers and publishers have no reason to find greener pastures on console gaming, Captain B.

    M$ doesn’t have the will to do it.

  12. CaptBirdman:

    I’m not talking about Games for Windows, I’m speaking about their interface, the Windows operating system.

    Games for Windows is a different thing… their OS has consistently proven to be the best and most open platform for practically anything PC. Odds are you are using a MS OS at the moment, and that’s what I’m talking about.

    The vast majority of PC games are made for Windows, and work best with that system. You can dislike MS for what they’ve done console wise, but the legacy they have with personal computers is second to none.

    I mean, even Sony makes computers that utilize Windows directly out of the box…

  13. phranctoast:

    I’ve noticed windows becoming less and less relevant in the casual point of view. After I stopped playing games on PC, everything can be achieved with PS3′s browser, my phone and tablet.

    My girlfriends laptop broke and was replaced with an iPad.

    MS’s prime source of income is dwindling.

  14. CON:

    “MS’s prime source of income is dwindling.”

    MS’s prime source of income is from the business sector, which they totally dominate.

  15. oldschool1987:

    Like, totally? O-Em-Gee! That’s totes amazeballs!

  16. phranctoast:

    “The past 5 years, and the last year in particular, have been simply painful to watch.”

    Xbox 360′s last five years have been “painful to watch” according to a former Microsoft engineer who helped create the original Xbox in 1999.

    In a blog post entitled “Stupid, Stupid Xbox”, Nat Brown asserts that Microsoft has spent the last five years mistakenly trying to turn the Xbox into a multimedia hub whilst abandoning all the studios and design features that made it a great games console in the first place.

    He explains, “The past 5 years, and the last year in particular, have been simply painful to watch. Coasting on past momentum. Failing to innovate and failing to capitalize on innovations like Kinect. Touting strategic and market success when you’re just experiencing your competitor’s stumbling failure (yes, Sony, Nintendo – you are, I’m afraid, stumbling failures). A complete lack of tactical versus strategic understanding of the long game of the living room.”

    Brown goes on to clarify that he completely agrees greater living room connectivity should be part of Microsoft’s business plan, but not at the expense of what made it great in the first place; a focus on games.


    The past 5 years, and the last year in particular, have been simply painful to watch. Coasting on past momentum. Failing to innovate and failing to capitalize on innovations like Kinect.

    “No, more and better content was always the point and the plan. My gripe is that, as usual, Microsoft has jumped its own shark and is out stomping through the weeds planning and talking about far-flung future strategies in interactive television and original programming partnerships with big dying media companies when their core product, their home town is on fire, their soldiers, their developers, are tired and deserting, and their supply-lines are broken.

    “Xbox’s primary critical problem is the lack of a functional and growing platform ecosystem for small developers to sell digitally-/network-distributed (non-disc) content through to the installed base of Xbox customers, period.

    “Why can’t I write a game for Xbox tomorrow using $100 worth of tools and my existing Windows laptop and test it on my home Xbox or at my friends’ houses? Why can’t I then distribute it digitally in a decent online store, give up a 30% cut and strike it rich if it’s a great game, like I can for Android, for iPhone, or for iPad?”

    Brown concludes by saying pretty damningly that “Microsoft is living in a naive dream-world,” stating that “Xbox just needs somebody with a brain and focus to get the product in order tactically before romping forward to continue the long-term strategic promise of an Xbox in every living room, connected to every screen.”

    The company’s come under fairly heavy fire recently from past employees. Just last week we revealed how the former VP of Windows Sales, Joachim Kempin, thought the company needed to refocus on PC, whilst he explained why it got into the console business, why Bill Gates didn’t think buying SEGA was a good shout and how the Xbox 720 will likely use Windows 8 as the basis for its interface.

    What do you think? Has Microsoft lost its way with how it’s handled the Xbox and is an urgent refocus on games needed? Let us know your thoughts in the comments.

    http://www.ign.com/articles/2013/02/13/xbox-founder-says-microsofts-last-5-years-were-painful-to-watch

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