Microsoft built the first Xbox from PC parts and lost billions
Bill Gates feared Sony's PlayStation 2 might replace the home computer. His response was the Xbox, a console assembled largely from ordinary PC components, with a built-in hard drive and an Ethernet port. It launched strongly in November 2001, sold 24 million units, and still cost Microsoft more than $4 billion.
The idea came in 1998 from Seamus Blackley, Kevin Bachus, Otto Berkes and Ted Hase, four engineers working on DirectX graphics software. They wanted a machine running Windows 2000 and DirectX so PC developers could switch easily. The WebTV group inside Microsoft pushed a cheaper custom appliance instead. At a meeting in May 1999, games chief Ed Fries argued that a hard drive would make online play possible, and Gates sided with the DirectX team.
Costs soon ballooned, because Microsoft would have to manufacture the hardware itself. Worried staff nicknamed the project the Coffin Box. At a February 2000 meeting remembered as the Valentine's Day Massacre, Gates raged at the new budget and at a design that seemed to sideline Windows, but agreed once reminded that the real target was Sony. Engineers also switched from an AMD processor to an Intel chip just before the January 2001 reveal, reportedly without telling AMD first.
The name was an accident of shorthand. DirectX Box got shortened to Xbox in emails. Marketing disliked it and put it into focus tests expecting it to flop, but it came out as the favourite. The controller fared worse: when Sony's supplier refused to make a compact circuit board, the first pad ended up nearly three times the size of Sony's.
Buoyed by Halo, Microsoft sold 1.5 million consoles before 2001 ended. It beat the GameCube but trailed the PlayStation 2 badly and flopped in Japan. Still, Xbox Live, launched in 2002, helped make online console gaming mainstream.
Source: Xbox (console)
