Xbox vs Playstation (REMIX) | Crash and Burn | 1

0:08Early evening, March 2000. In a suite at the five-star Hempel Hotel in London, Jay Allard heaves a heavy PC out of a freight case and onto the table. But this is no everyday tower PC. It's one of just four prototype Xboxes and fashioned from reflective aluminum to resemble a giant X. Allard rubs his shaved head and pauses to admire the prototype. He's an extreme sports fanatic and famed within Microsoft for convincing co-founder and chairman Bill Gates to embrace the Internet. Three weeks ago, the project codenamed Xbox was just an idea. An idea that will cost Microsoft a billion dollars. But tomorrow, it goes public with coordinated announcements in California, Tokyo, and London.

0:59And it's down to Allard to ensure its European unveiling goes without a hitch. He connects the Xbox to a TV and then plugs its power supply into the wall socket. The Microsoft PR man helping Allard practice tomorrow's announcement, checks his notes and looks up expectantly at Allard. Okay, Jay, from where you left off. Allard stands. We don't have the real thing here today, but we do have this to show you how amazing it's going to be. The PR man interjects. That's when you pull away the sheet covering the Xbox and TV. We'll have someone nearby to take the sheet from you. Gotcha. This is... Wait!

1:38You need to wait for applause. Uh, what if it doesn't come? I'll clap. Once someone claps, others feel obliged to clap too. So you wait for the applause and... Hold up, where's the picture? Allard looks at the blank TV screen. He presses the Xbox on button again. Nothing. He looks at the electricity socket and smiles. Oh, it's these British plugs. I forgot to flick the switch on the wall to get power. Allard kneels and flicks the power switch. Uh, Jay, was that smoke? Allard spins around to see wispy trails of white-gray smoke dissipating from the Xbox's power supply. He looks at the red power switch, the one that he was supposed to flip, before plugging the Xbox into Britain's 230-volt electricity supply.

2:27He's just fried the Xbox, and there is no backup.

2:35Just after midnight, Allard sits cross-legged on the floor of the hotel suite, surrounded by the disassembled innards of the Xbox. He cradles the phone between his neck and shoulder and listens as a Microsoft engineer in Redmond, Washington, walks him through the emergency surgery. Allard moves in carefully with the rusty pliers he found in the hotel's grubby maintenance room. Slow down, I'm working with pliers here. I don't have a screwdriver. There's a knock at the hotel room door. The Microsoft PR man, who spent the past hour pacing the room, rushes over. At the door is a motorcycle courier, holding a package.

3:12Package for Jay Allard? Thank God. The PR man signs for the package, rushes it inside, and rips it open. It's a replacement power supply sent from a Microsoft partner 12 miles away. An hour later, the Xbox is up and running, and Microsoft's plan to storm the video game market is back on track. But a fried power supply is the least of Microsoft's problems because right now the Xbox doesn't really exist. Microsoft has no console and no games and with every passing day, Sony is cementing its already commanding position as the video game market leader. Microsoft's got less than 18 months to get the Xbox from zero to launch.

4:01Otherwise, the Sony PlayStation 2 will have had two holiday seasons without any meaningful competition. And if the Xbox fails, Microsoft will have fumbled its one shot to crash the living room. And that could stunt its growth and allow Sony to rule home entertainment.

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6:59Five years ago, we first covered the gaming power struggle between Sony's PlayStation and Microsoft's Xbox. Now, we're rebooting that series from the ground up and updating it for the PlayStation 5 and Xbox Series era. Much has changed since then. The games industry is now worth$347 billion. And rather than cooling down, the battle between PlayStation and Xbox is heating up. Microsoft's just spent tens of billions buying Call of Duty publisher Activision, while Sony's shoring up its number one position with support from Spider-Man and virtual reality headsets. But in 1999, the console business looked very different.

7:44Sony's first PlayStation had just crushed Sega and shoved the one-time video game champ Nintendo aside. And Microsoft hasn't even gotten into the fight yet. They're still associated with work, not play. But the Xbox is about to upset that balance of power and change the games industry forever. This is Episode 1. Crash and Burn

8:16March 1999, 12 months before Microsoft announces the Xbox. In a vast auditorium within the Tokyo International Forum, a woman in a bright white uniform walks onto the darkened stage. The journalists in the audience strain to see the device she's carrying in her hands like a sacred offering. It looks like a miniature recreation of the black monolith from the movie 2001, A Space Odyssey. She puts it on the table in the middle of the stage. It stands vertically. As cameras flash, the audience glimpses the characters etched on its side. PS2. The next Sony PlayStation is here. A brawny man in a suit walks on stage.

9:01He's Ken Kutaragi, the brains behind PlayStation. Seven years ago, he was a rebel engineer flirting with dismissal thanks to his belligerent manner and disrespect for the chain of command. Now, his PlayStation division delivers 40 % of Sony's profits. He heads to the podium and pulls the microphone towards him. This is the next generation PlayStation, powered by the advanced graphics of our motion engine chip. Imagine walking into the screen and experiencing a movie in real time. This is the world we are about to enter. The audience gasps as the screen behind Kutaragi comes alive. On it is a PlayStation 2 generated animation of water sloshing around in a sink.

9:55No game consoles offered visuals this good before. On the first PlayStation, water looked like spiky glass, so jagged it could cut you to ribbons. But the PS2 makes water look and move like liquid. Kutaragi smiles with satisfaction. He and most of the games industry thinks the PS2 will finish Sega and Nintendo and end the console wars for good. But his and Sony's ambitions go much further. Sony's no longer just thinking about games. It wants to own the living room, just like Windows PCs own the office. The PS2 will also play DVD movies and be able to connect to the Internet. Our dream is to create a new form of computer-based entertainment.

10:45And that's a plan that's triggering alarm across the Pacific.

10:55March 1999, Washington State. At the Semi Amu Resort near the Canadian border, Microsoft's annual executive retreat is underway. In a large room, small groups of executives are busy brainstorming. In one corner, Rick Thompson grabs a marker pen and starts writing in big block capitals on a large sheet of paper. Thompson is 39 and ahead of Microsoft's hardware division. It mainly makes mice and joysticks for desktop PCs, but Thompson feels it could do more. Thompson and his group stop writing and hold up their sheets of paper. Microsoft CEO Bill Gates stalks over and peers at what they wrote through his large Coke bottle glasses.

11:41He homes in on the three words scrawled on Thompson's sheet of paper. Sony, AT &T, AOL. What's that about? Thompson smiles. What if Sony, AT &T, and AOL team up to make a box? What would that mean for us? A game console plus a cable box plus an internet modem all in one device. Gates' mind races. The world's biggest console maker plus America's leading telecoms firm and internet provider. Now that would be a formidable foe. He looks at Thompson. You think they might get together? I don't know, but Sony is talking of the PlayStation 2 as the future of computer-based entertainment. If that happens, people won't be running Windows on their game console.

12:29Gates nods sternly. For him, anything that doesn't run on Windows is an existential threat. The next day, an email goes out across the Microsoft empire, calling for teams to propose ways to muscle windows into living rooms. Two teams rise to the challenge. The first comes from WebTV, a recent Microsoft acquisition staffed with engineers who helped design the unsuccessful 3DO, the first console to offer both 3D graphics and CD-ROM storage. Their vision is to design a dedicated games machine that can outrun the PlayStation 2. Then there's the Xbox team, a small cabal of Microsoft veterans with ties to the company's entertainment software arm that publishes PC games and educational software.

13:20Their vision is to make a games console that's really a Windows PC in disguise. And they've named it Xbox, after DirectX, the suite of Microsoft tools that help developers make games for Windows. But only one vision can survive.

13:41June, 1999, the Microsoft campus, Redmond, Washington. The Web TV team stares in horror at the PC on the meeting room table. The PC's been hurriedly hacked together by the Xbox team, and it looks like a dog's lunch. Its circuits are exposed to the elements, and there's a digital clock grafted on. One member of the Web TV group turns to the Xbox team. You brought along hardware? We thought this was an initial presentation. We've only got slides. This isn't fair. Xbox engineer Nat Brown adjusts his glasses and gives them a steely stare. What's unfair about that? Only one of us is leaving here alive.

14:21So we're here to shoot your project in the head. Before the Web TV team can respond, Bill Gates enters the room. He immediately notices the computer on the table, just as the Xbox team planned. A clock slapped onto the computer? What's up with that? The Xbox team smiles. They know Gates is a geek, and giving him a chance to nerd out is worth more than any PowerPoint deck. Brown plays it cool. We're not going to get to that yet, but we can if you want. Gates can't resist. Well, what is it? It's to show you how fast we can boot Windows 95. Brown turns the PC on. Seconds later, Windows 95 is ready.

15:06Gates blinks in shock. If my PC did this, it'd save me an hour every day. How? We stripped it back to the essentials. Our point is, we're not building a games console like the Web TV guys. We're building a living room PC. Xbox will be a platform based on Windows. We'll get manufacturers like Dell to produce it. Use off-the-shelf hardware. Brown pauses to let Gates absorb the idea. And then goes in for the kill. The other advantage is that it'll be easy for PC developers to repackage their games for it. Our console could be built fast and on sale in stores next year. The Web TV team has been outmaneuvered, but they press on with their presentation with nothing but a numbers-heavy slide deck laying out their business plan.

15:58Not high drama. But in the tedium, there is some truth. The Xbox team's plan won't work. It repeats the mistakes of the past. 3DO tried to outsource manufacturing, remember? This made the console expensive, and that's why it failed. Philips, Apple, NEC, they all made game consoles and failed. Sony succeeded because it focused on making a great games machine with custom-designed chips, and that's what we proposed to create. But Gates is too smitten with the thought of speedy windows. Thanks, but why would I say no to the project that boots Windows in five seconds? Even if the Xbox fails, I still win because I get Windows that loads fast.

16:44Plus, I want Windows in the living room. Xbox is offering me that, and you're not. And that means your proposal is no good for me or this company. So yeah, Xbox is the proposal that goes ahead. The Xbox team has eliminated the internal competition, but they still need to deliver a business plan that Gates can live with. And that's where the Xbox team skids into trouble. Microsoft hoped PC manufacturers like Dell and Compaq would manufacture the Xbox, but they don't want to produce Microsoft's console. Game consoles are sold for little or no profit. The real money comes from selling games to people after they've bought a console.

17:29So there's no incentive for the likes of Dell to make the Xbox. Game publishers and developers doubt Microsoft cares about the video game business and refuse to commit to making games for the Xbox. To the games industry, Microsoft's just a big corporation that doesn't understand games and will walk away the moment it learns it's not easy money. And no game publisher wants to get burned making games for a console no one buys. The team's engineers discover it's easy to make a quick and dirty demo of fast-loading Windows, but way harder to make Windows fast and hassle-free enough to sit at the heart of a games console.

18:11By Christmas, it's clear that the Web TV team was right. The Xbox proposal isn't going to work. So the Xbox team rips up their plan and works feverishly on a new one, A plan that Bill Gates is going to hate.

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20:16Valentine's Day 2000, Redmond, Washington. Just after 4 p.m., Microsoft Chairman Bill Gates storms into the packed boardroom, scowls at the Xbox team, and slams their business plan down on the table. This plan is a f***ing insult to everything I've accomplished. I killed Web TV's proposal because it didn't run Windows. Now you're ditching Windows. The Xbox team turns to their tech guru, Jay Allard. The plan was that he would defend the decision to drop Windows from the Xbox. But Allard's too shocked to speak. Xbox chief Robbie Bach jumps in. We looked at this. Windows just isn't right for a games console.

20:57It's too slow. Windows is why your project exists. Microsoft's new CEO Steve Ballmer furiously leafs through the Xbox business plan, searching for the page with a financial projection. When he lands on it, he snatches it out of the plan and waves it in their faces. You plan to lose one billion dollars? A billion dollars? What kind of business plan is that? Bach tries to mount a defense. That's the price of entering the market. And why is there an Ethernet port? No one's got broadband. Hallard snaps out of his days. The Ethernet port was his idea. To him, the future of games is people playing together over the Internet from different places, rather than sitting in the same room.

21:45People playing together online is what will set the Xbox apart. And four years from now, plenty of people will have broadband. But the attacks keep coming. Over and over, Gates and Ballmer lay into the Xbox team and their plan, working them over like a tag team. The sunlight fades. Valentine's Day dinners get canceled. And still, the blows keep coming. As 8 p.m. approaches, Gates lays his cards on the table. Here's the way I see it. We need something like the Xbox to build a cohesive consumer strategy. We either do it or we quit consumer. Sell the PC games division, get rid of MSN, shut the productivity division, and focus on business and beating Oracle.

22:32The Xbox team blinks in shock. Now it's not just the Xbox on the line, but Microsoft's entire involvement in consumer technology. Box snaps back at Gates. Fine. We've looked at this business from every angle, and I believe this is the way. If you think our strategy is wrong or you don't want to do this, let's just stop right now. Gates and Balmer go quiet. Then Craig Mundy raises his hand. He's one of the senior executives who championed Web TV's proposal over the Xbox, and he's not said a word all meeting. What about Sony? Gates and Balmer's eyes soften. In their rage, they lost sight of why the Xbox project exists.

23:17To stop Sony from controlling the computer-based future of home entertainment. Ballmer turns to Gates. Yeah, Bill, what about Sony? Gates looks back at Ballmer. Well, what about Sony? We can't let them own the living room. A smile creeps on Ballmer's lips. The threat of Sony turning the PlayStation into the entertainment computer of the living room can't go unchallenged. This is his first big decision as Microsoft CEO, and the idea of fighting Sony in the home. Thrills him. No, we can't. Suddenly, Balmer ignites with excitement. He starts hammering the boardroom table with both fists. Yeah! Yeah!

24:04Yeah! We are gonna do this. We're going to make a games console, and we're going to give you guys everything you need. Everything. Go. Go do it and make it successful. The day's Xbox team heads home with the entire might of the world's most valuable company behind them. They've sold the Xbox to Gates and Ballmer. But now, they must win over an even more skeptical audience. Video gamers.

24:38February 2000, Seattle. In a rented meeting room, Xbox executive Don Coiner is on a mission to pinpoint the marketing strategy for Microsoft's first game console. In front of him are two dozen 18 - to 25-year-old males who love video games, the demographic niche that Xbox needs to win. He brings up the technical specifications of three game consoles on the screen. There's the just-released Sega Dreamcast, the just-about-to-be-released PlayStation 2, and then a mystery console called the Apollo, which is really the Xbox. Let's say you can only buy one of these consoles. Which would it be? Okay, who's for the Dreamcast?

25:24One person raises their hand. Pointer's not surprised. The hype around the new PlayStation is already hurting sales of the Dreamcast, And rumor is Sega may soon bow out of the console wars altogether. How many for the PS2? Around half the room raise their hands. And the Apollo? The other half raise their hands. It's an encouraging sign. Core gamers are attracted to the Xbox's vital stats. Coiner focuses on a guy near the back of the room. Aaron, tell me, why did you go with the Apollo? It's like a high end. You got a hard drive so you don't have those annoying memory cards. It's got an Ethernet port, too.

26:09PS2's cool and all, but it doesn't have those things. Coiner nods and prepares to drop the bombshell. Okay, so what would you say if I told you that the Apollo is made by... Microsoft. Microsoft? Yes, Microsoft. One of the people who picked the PS2 cuts in. No one's going to buy a Microsoft console. What's it going to play? Flight simulator and Internet Explorer? The room dissolves into laughter. Coiner tries to ignore it and points at Aaron again. He wants to understand how the Microsoft connection affects Xbox's chances. Well, Aaron, what would you say? I'd say no way. I'm not buying a Microsoft console.

26:54It'll just blue screen me all the time, or I'll want to play and it'll take like 10 minutes to start up. Forget it. I'm PS2 now. He hates it again. That's the truth. Coiner watches the other Apollo fans nodding in agreement. When it comes to winning over console fans, it's clear the brand Microsoft is toxic. So after the focus group, he reworks the marketing strategy. He sidelines the Microsoft name and focuses on the Xbox brand. He also decides Xbox's only hope is to overcome the resistance to the idea of a Microsoft console. So he makes winning over the hard-to-please core gamer the brand's top priority.