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Behind The Success of Xbox With Former Microsoft President

Robbie Bach, Xbox Revisited

With Robbie Bach, Former Chief Xbox Officer, Author of Xbox Revisited: A Game Plan for Corporate and Civic Renewal

Business and marketing veteran of 20-plus years, Robbie Bach, shared with Steve the experience of creating the Xbox video game business and some key lessons he learned from that process. Robbie also talked about the importance of civic duty for both individuals and companies.

A Business Veteran And Civic Duty Enthusiast

Robbie Bach joined Microsoft in 1988 and, over the next 22 years, worked in various marketing, general management and business leadership roles. Beginning in 1999, as Chief Xbox Officer, he led the creation and development of the highly successful Xbox video game business. In his new role as a “Civic Engineer,” Robbie believes we all have a responsibility to engage on civic issues. He dedicates his time and energy to providing strategies and creative ideas to organizations that are driving positive change in our communities.

Robbie now spends a great deal of time speaking to corporate, academic, and civic groups across the country. In 2015, he completed his first book, Xbox Revisited: A Game Plan for Corporate and Civic Renewal.

Xbox Revisited is a wake-up call, a challenge to every citizen to become a “civic engineer” themselves, addressing the challenges we face in our local communities and across our country.

The Importance Of A Mission Statement

Robbie pointed out the importance of having a refined and structured mission statement that gets to the heart of what a company is trying to do. According to his book, a mission statement/company goal should be whittled down to three key points of focus. Robbie’s current three focus points echo Thomas Jefferson from the Declaration of Independence: life, liberty, and the pursuit of happiness.

It’s also important to focus on partnering with other companies and individuals to collaborate and build one another up. Sometimes this means partnering with retailers, publishers, or developers. Microsoft’s Xbox enjoyed success over competitors Nintendo and Sony largely because of its ability to partner with other companies, something that gave it a significant competitive advantage.

Getting Involved In Civic Duty

As Robbie transitioned from corporate wizard into his new role as a civic engineer, he shifted his focus to getting involved in his community. He believes that regardless of your occupation, the community can benefit and be bettered by the work you do if you focus on that as a personal goal.

Purpose And Plans

It’s important to know your purpose, to know what you stand for, what you want to work on, and then to develop that into a concise personal mission statement. That gives you a solid foundation on which you can build your work and career. If you’re running or working for an organization, aim to develop your core principles and three to five things you plan on fighting for or against. Include what specific steps you plan to take to advance issue or cause.

Robbie believes that the world could be a much better place if both individuals and corporations put more focus on community service. Doing so can help keep both you and your company grounded and more in touch with the people you serve.

To learn more about how to get civically involved and help your company or organization thrive, check out Robbie Bach’s book Xbox Revisited: A Game Plan for Corporate and Civic Renewal at his website, https://www.robbiebach.com/.

Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

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Steve Pomeranz: Robbie Bach joined Microsoft in 1988 and over the next 22 years worked in various management and leadership roles. But beginning in 1999, he became Chief Xbox Officer, and he led the creation and development of the highly successful Xbox video game business. As a matter of fact, in Microsoft’s latest report, the gaming division, which also includes the software from Surface, but Xbox is a big part of that, accounted for $2 billion in revenue for the company and becomes a more important factor for Microsoft every year.

Now, Robbie has written a book about his experience and the management lessons he learned through this very tumultuous time and has developed principles which helped shape his success and can be used by all of us to do the same, whether it’s for business, a non-profit, or if you’re involved in government. The book is Xbox Revisited and I’d like to welcome Robbie Bach to the show. Hey, Robbie, welcome.

Robbie Bach: Hey, thanks, Steve. Good to be on with you.

Steve Pomeranz: So let’s get a start here. What did you do before working for Microsoft?

Robbie Bach: I was on Wall Street for two years at Morgan Stanley and then I went to business school at Stanford. So undergraduate school, two years on Wall Street, two years at Stanford, and then straight to Microsoft.

Steve Pomeranz: So why Wall Street and why did you leave Wall Street especially that long ago? Wall Street was pretty hot, wasn’t it?

Robbie Bach: I was a financial analyst there doing stock offerings, debt offerings, working with corporations. I learned an amazing amount there. I worked harder than I’ve ever worked in my life and I discovered in that process that I wasn’t in love with the finance. I was in love with the people and the sales and marketing part of it.

And so I went back to business school to sort of reorient myself from a finance background into more of a sales and marketing background and Stanford gave me the opportunity to do that.

Steve Pomeranz: So coming out of Stanford, is that when you joined Microsoft?

Robbie Bach: I did, I joined in 1988, right after I graduated. So really, Morgan Stanley and Microsoft are the two major places I’ve worked in my career.

Steve Pomeranz: So how did you finally get involved with Xbox? I mean, it didn’t really exist at the time. Did something actually happen that all of a sudden set this idea of having a game console in the home as an important priority?

Robbie Bach: Yeah, we had an executive staff retreat in 1999 where one of the guys who worked for me, a gentleman by the name Rick Thompson, proposed that Microsoft do a video game console. Rick ran our hardware business that did mice and keyboards and a number of other products. So that idea got a little bit of traction.

Bill reviewed some technical ideas that people had and the company decided to evaluate it more seriously. And so Rick and I got asked to lead that evaluation. And when we decided to go ahead with the project that became known as Xbox, Rick ultimately decided to leave the company and go work for a startup and so I became Chief Xbox Officer.

Steve Pomeranz: Okay, well, the thing was that Sony and Nintendo were getting into the living room too at that time, right?

Robbie Bach: Well, that was what motivated Microsoft, particularly Sony. Sony came out with a product called the PlayStation 2, which they positioned as a living room PC. And that, of course, got the attention of everybody at Microsoft. And so we felt like we had to have a product to compete with them in the living room.

Now, they had a—depending on the market—a 12 to 18-month head start on us, so we had our work cut out for us right from the beginning.

Steve Pomeranz: So this was 1999, approximately?

Robbie Bach: That’s correct. The project got approved on December 21st, 1999.

Steve Pomeranz: Yeah, I mean the idea of having a PC that covers your entertainment in your living room is pretty common these days. But back in 1999 that was a brand-new concept, wasn’t it? I mean that was before Netflix and other services came out.

Robbie Bach: Yeah, this was still in the world of over the air broadcast and cable being the dominant form of entertainment in the living room. And the living room was mostly what we would call a lean-back experience, where you lean back in your chair and absorb what was going on. Video game consoles as they got more and more popular brought more of a lean-in experience where people got really engaged.

And then, eventually, when Xbox Live introduced the concept of Netflix over Xbox, suddenly people said, oh, wow. This is a full entertainment system. That’s very exciting.

Steve Pomeranz: Yeah, yeah, it happened for me. I bought a Blu-ray DVD player and all of a sudden I could get Netflix. And that opened it up for me, but that was way later.

Robbie Bach: It was, it was, that didn’t happen until three to four years after the original Xbox was shipped.

Steve Pomeranz: So were Bill Gates and Steve Ballmer involved at this early time?

Robbie Bach: Oh, they were definitely involved. Bill, as I said, reviewed all the technical plans and sort of gave us a go-ahead on a basic technical approach. And Steve was reviewing all the business plans. And we had, as I said, approval in December, and that was Bill and Steve approving the project.

And then we had, as I described in my book, second approval on Valentine’s Day and 2000 where they really questioned us on what we were going to do. We had a very difficult meeting, but they, ultimately, at the end of about a four-hour meeting approved it and were really great support throughout my time at Microsoft.

Steve Pomeranz: My guest is Robbie Bach and his book is Xbox Revisited. He was the Chief Xbox Officer and lead the creation and development of this highly successful game. And that’s what we’re talking about today. So, the amount of money invested, the expected budget and expected losses were wide in the early years?

Robbie Bach: Well, I think the original business plan anticipated that we’d probably have to invest, which means lose, something like 1.5 to $2 billion, something in that range. And, ultimately, depending on how you do internal accounting within Microsoft, the first version of Xbox probably lost between $5 and $7 billion, so it was a major investment and a significantly larger investment than anyone anticipated.

Steve Pomeranz: Now the first iteration I guess was it Xbox One?

Robbie Bach: It was just called the Xbox.

Steve Pomeranz: The Xbox, okay. That was kind of a failure, wasn’t it?

Robbie Bach: Well, it was sort of a mixed bag. I mean, it was, financially, absolutely a failure. So if you were a Wall Street type, you hated the first version of Xbox. From a market perspective, we got to, in most markets, 20 or 25% market share, and we were really neck-and-neck with Nintendo in that generation of video game consoles.

So in a way, it was a very, very expensive first step. But we made enough traction to get a beachhead in the business and that enabled us to come back with a second-generation product called Xbox 360 which was significantly more successful.

Steve Pomeranz: But your personal involvement hit a low point sometime around that and you tried to resign, why was that?

Robbie Bach: I did. Right before, the process of building Xbox, the time from the approval on the Valentine’s Day meeting through 2000 to 2001 until the launch of Xbox in late 2001, was an incredibly difficult time. We were building a team from 20 people going to 2,000. We were trying to build a console that was very complicated, something that we had never done before. We were trying to establish ourselves in the gaming industry.

And, frankly, I felt like I was failing. I didn’t feel like I was leading the team the way it needed to be led. I didn’t think I was doing a strong enough job providing that leadership. And I reached the point where both for professional reasons and because it was having a huge toll on my personal life, I sent a resignation letter to my boss Rick Belluzzo. And said, hey, it’s time to find somebody else to run the business.

Steve Pomeranz: What did he say in return?

Robbie Bach: He called me the next morning in a little bit of a panic and said, oh, come on, you’ve got to come down and talk to me about this. We’ve got to figure out a different way to do this. We walked through the issues and he asked me to keep working on it through the launch, and this was some three months before the product was getting ready to launch, so, it was not a great time. And then he connected me with some folks who could help me think through my professional leadership and my personal life.

And Francis and Jack Fitzpatrick run a consulting business doing this. And that really changed my whole perspective on how to think about the job and gave me sort of the courage and ability to drive through the difficulties and get to the other side.

Steve Pomeranz: My guest is Robbie Bach, we’re talking about his book Xbox Revisited, where he headed up a division for many years. So you had an epiphany, or you had a change of heart. You kind of hit bottom and then rebuilt yourself and you developed something called the 3P Framework. Tell us about that.

Robbie Bach: So when we started thinking about the second generation of Xbox, the product that came to be known as Xbox 360, the management team, and I was the leader of that team, concluded we had to do things in a different way. And we developed the profits which today I’ve sort of rounded out and completed and called it 3P framework.

And the basic idea is early in a project whatever you’re trying to do, you have to establish in one clear statement what your purpose is and what you’re trying to accomplish. You’ve got to establish the principles, and you only get four or five of these of how you’re going to operate as a team and as individuals. Then you have to establish a maximum of five priorities of things you’re going to focus on to achieve your purpose. You have to be able to write all of that down in three pages.

Steve Pomeranz: Three pages.

Robbie Bach: I will tell you that when you have a complex problem, it’s really challenging to do it in three pages. But when you do, all the complexity kind of fades into the background. And it enables you and the team to get very, very focused on what you have to get done.

Steve Pomeranz: Well, when you first started writing these, how many pages did it turn out to be? Was it 30? Was it 300? How did you-

Robbie Bach: It’s very interesting. I wrote the initial draft of that first three-pager, and I forced myself in the first draft to make it three pages.

Steve Pomeranz: Ah.

Robbie Bach: And it’s really hard. In the book, I go on to write a three-pager for our federal government which of course it was kind of a crazy task in a way.

Steve Pomeranz: [LAUGH]

Robbie Bach: And the first draft of that was 12 pages.

Steve Pomeranz: Yeah.

Robbie Bach: [LAUGH] So it really is quite challenging. But what it forces you to do is it forces you to eliminate all the lint, all the clutter, all the superfluous things and get very disciplined about saying what’s really important.

Steve Pomeranz: Well, there are a lot of books that tend to talk about these kinds of things. I think your book is different, it’s more direct and I think you’re not a consultant. You come from the direct experience of actually starting from scratch and turning out and working with teams and turning out a successful product. You mentioned a short declarative statement.

Anybody who’s done any kind of leadership role knows about a mission statement, that an organization should have a mission statement. Is that what this is, or is this first purpose statement something different?

Robbie Bach: Well, when I go and work with companies or with other organizations, I went into places that have a vision.

Steve Pomeranz: Yeah.

Robbie Bach: And then they have a mission statement and they have a goal. And when I see that, my media records, even at the first statement we’ve made things too complicated. So a purpose that to me is sort of replaces all of that. It is a simple declaring of statement that does this is what I want to accomplish. This is what we have to get done as a team.

Steve Pomeranz: Mm-hm.

Robbie Bach: And we all have to be short enough to be memorable and challenging enough that it forces them to really stretch.

Steve Pomeranz: There’s a magic to the number three and the number five. You mention in your book to internalize a strategy or movement you need to reduce it to three simple points. And if I may, you mention life, liberty, and the pursuit of happiness—three points. The triple crown, three points, the hatch trick, three points. What were Microsoft’s three points for the Xbox?

Robbie Bach: Well, in the Xbox case, we had a couple of really core things that we knew we had to get done. But first of them was, when we were doing the second generation of the product, the hardware can’t lose a lot of money.

Steve Pomeranz: That’s a good start.

Robbie Bach: Which sounds a little silly. But that 5 to $7 billion I talked about-

Steve Pomeranz: Yeah.

Robbie Bach: The hardware actually lost more than that. So you can’t build a business when the hardware loses money. So one of our core ideas was the hardware has to get to break even. The second sort of thing I would put my term rule of three is, it’s all about the games. So in the gaming business, doesn’t matter how cool your hardware looks or how fast it is, or blah, blah, blah. What matters is the developers produce amazing games on it. And if you can get people to produce amazing games, then incredible things happen.

And the third thing I would put on my list is, you have to be able to partner. And in our industry, there’s so many different people. You have to partner with retailers. You have to partner with publishers. You have to partner with developers. And Microsoft became a better partnering organization than Sony or Nintendo. It was a competitive advantage for us, and it’s a place where I actually spent personally a lot of my time. So those will be the couple of things I would highlight if somebody asks me, you know, tell me three things that were important to that future of Xbox.

Steve Pomeranz: But you ran into a lot of resistance from the product developers. They didn’t really understand a lot of the ideas of how you are going to monetize this, how you’re going to divide the profits and so on. Very briefly can you just come on and give us an idea, I think Electronic Arts was one example you used in the book.

Robbie Bach: Yeah, the biggest challenge we had wasn’t so much with the basic idea of the console, but it was this concept called Xbox Live which was the first online gaming service on the television. And we had a set of principles to use the keyword that we established that were very difficult for developers to sort of crack. I’ll give you a random example: every game had to support voice in the game, completely new concept. And as it turns out, voice is what makes Xbox live a social network.

Steve Pomeranz: What do you mean, the fact that players can talk to each other?

Robbie Bach: Yeah.

Steve Pomeranz: Okay.

Robbie Bach: Over the network.

Steve Pomeranz: Yeah.

Robbie Bach: But if you think about, this is before Facebook. This is before MySpace.

Steve Pomeranz: Mm hm.

Robbie Bach: So this is a long time ago and we’re building a social network. So we required everybody to do voice.

Steve Pomeranz: Okay.

Robbie Bach: And now to convince people to do that we had to carry our share of the burden. Which is we had to produce great tools to make it easy to incorporate voice in the games and we did that work. And we also had to explain to people Xbox Live is a subscription service, how are we going to share the revenue with the rest of our publishers. And that took us time to figure out, but I think we got to a very good place where everybody realized it was a good thing for the business.

Steve Pomeranz: So you’ve got your purpose and now you’re setting your priorities defining five key initiatives, the rule of three and five that drive the organization for one to three years. Unfortunately, we got about a minute and a half left. I want to get into very briefly this idea of now in your new role and the way you’re thinking about helping us and our country to develop these kinds of principles in politics and so on.

Robbie Bach: Well, the basic idea here is, whether you work for a non-profit, work for a government agency, you work for a community organization, or you’re just an individual, you want to make your community a better place. Think about what purpose, what issue you want to attack, and write that simple purpose statement. And if you’re an organization and you have a challenge, write that purpose statement. Hey, maybe it’s transportation in Manhattan or maybe it’s in Seattle, we’ve got a huge transportation problem or it’s education.

Write your purpose statement. Write your five principles for how you’re going to operate against that problem, and then figure out the five most important things to get done. And I promise you if we did this in civic issues and I’ve done this with organizations, civic organizations for the last two or three years, when you get people to focus at that level, it clears away a lot of difficulties and you can find a great way forward to really achieve success on complicated problems.

Steve Pomeranz: Is there a website people can go to on this?

Robbie Bach: There is, if you go to conveniently named www.robbiebach.com. That’s R-O-B-B-I-E-B-A-C-H. And the website has videos of me talking about the 3P framework, it has background information on the 3P framework, there’s examples. And there is plenty of information there for people who are interested in pursuing it and, of course, you can also buy the book there too which has a lot more detail.

Steve Pomeranz: Robbie Bach, like the composer, B-A-C-H, dot com for more information. And the book, once again is Xbox Revisited, my guest has been Robbie Bach. Hey, Robbie, thank you so much. Very entertaining and very insightful.

Robbie Bach: Thanks, Steve.