(Photo credit: Kotaku.)
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Growing up, Phil Spencer was motivated by two things: video games, and new hardware on which to play and create video games. His desire to upgrade from his Commodore VIC-20 and other primordial PCs set him on a path that led to the head of Microsoft's Xbox division and, at the time of this writing, the final two weeks until the launch of Xbox Series X.
Spencer and I caught up to reflect on the rocky launch of Xbox One, the equally tumultuous events that encouraged him to lead the Xbox division, how 2020's pandemic altered the course of Microsoft's and Sony's launch years, and his priorities as the chief of Xbox at Microsoft.
David L. Craddock: What I'm doing is writing a book-sized feature on Microsoft's history in gaming. It started out as a history of the Xbox platform, but I noticed there wasn't nearly as much information available on Microsoft's early history in games.
Phil Spencer: Microsoft Adventure—I think that was our first game.
Craddock: That's right. And then Decathlon, and then we move into games like Solitaire and Minesweeper, and then into publishing on PC.
Spencer: Flight Sim is back, which is good.
Craddock: Yes, that game is beautiful. Before we talk more about the present and move into the future, I'd like to retrace your first steps at Microsoft and in the games industry. What brought you to the company?
Spencer: The thing that brought me to the company was the offer to keep my internship PC at the end of summer. [laughs] I was in what's now called the human-centered design and engineering department. It was called something different back in the stone age when I was there, at the University of Washington. [points out his window] I point because it's 20 minutes that way. I was in my sophomore year, and a guy in the dorms who lived near me, his dad was a vice-president at Microsoft. I had been doing video game stuff on Commodore 64, VIC-20, Atari ST in my high school years. So I was a programmer and he came by the dorm and saw what I was doing and said, "Hey, do you want to be an intern this summer?"
It was a choice between that or going back and working at Computer Mart, which was the local video game store that I worked in over summers in high school. My friend said, "At the end of the summer, you get to keep the PC that you're working on." And I was like, "Okay. I'm in." IBM PC Jr. for home. That's what brought me.
I was in what was called the CD-ROM group, which was a precursor to the multimedia division, which was kind of a precursor not only to the gaming team, but some other teams inside the company. But I started as a software design and development engineer intern in the CD-ROM group in 1988.
Craddock: As Microsoft moved into more game publishing under folks like Tony Garcia and Ed Fries, did you gravitate naturally to that, given your interest in games?
Spencer: I ended up more in the multimedia side of Microsoft. I did things like Bookshelf and Musical Instruments, all of these CD-ROM applications. I was a programmer on those. The games teams kind of grew up as I'd say a sibling. This was pre-original Xbox launch, so Microsoft Game Studios was going. I knew Ed Fries, and Alan Hartman were down there, and some other people. Robbie Bach came by my office one time and said, "Hey, you should think about coming down and working with the game studio stuff."
So I gave Ed a call. This was, I think, the year 2000, before Xbox launched. I ended up running a studio for him called Studio X. We had some PC games. Rise of Nations was one of my first published PC games as a studio manager here. I had a relationship with Ed because he was a development manager and I was a developer manager in the company. so we knew each other from those days.
Craddock: One of my favorite figures in the games industry, the late Satoru Iwata, was said to be a great leader for Nintendo in part because he came from a development background. He could relate to what the teams were going through, and there are stories, which I'm sure you've heard, of Iwata rolling up his sleeves and helping finalize code even after becoming president of Nintendo. Do you find that your development experience lends better insight into what your game partners need?
Spencer: I think like many things in our lives, that experience is helpful on certain things. I think it's hurtful in other ways. One thing I definitely want is I want our team to be accessible to many different skill sets. I don't think everybody has to have written code in order to be at Microsoft or in our group. We have people that are theater majors, fine arts majors, history majors, and computer science majors. I do think it helps me when I think about our strategy and what's feasible and certain timelines, on certain things, but helpful only in the context of a team that has multiple points of view that come together, not helpful in the "I alone can figure it out because I understand how code works" for sure.
Craddock: Looking ahead several years: Don Mattrick announces Xbox One in early 2013, and leaves later that year for Zynga. What happened behind the scenes that led to you assuming his role as the Xbox chief?
Spencer: [laughs] What happened when Don left was, the Xbox team was kind of… Well, more than kind of: It was distributed amongst the company in what I would say is a way that wasn't really feasible for Xbox. This was before the launch of Xbox One. Don left in June, I think, right after E3 of that year. We were launching in November. So we still had months to go to actually launch the console without a leader, Marc Whitten, who was kind of my co-manager—he ran the platform team; I ran first-party studios—Marc ended up going into the Windows division. I stayed running first-party games in another part of the company.
So we were actually separated, and even like our marketing team was moved out. This took what was the cohesive team under Don and split it up into three, still with the goal of us shipping this console with games, and it was difficult. I don't think it was the best move for stability of our launch, but kudos to Marc and everybody: We got it done and we launched the Xbox One mostly on time. I'd say there were some of the parts of the platform that weren't completely done when we launched, but kudos to the team [for doing what they could]..
So that was in November. Marc left to go to Sonos. Satya Nadella… [laughs] We also didn't have a CEO at Microsoft at this time because Steve Ballmer had left. So Satya becomes the CEO in February. Then the question is, do we go forward with Xbox? Because we're getting really outsold by PlayStation in the market at this point. Do we stay invested in it? Or do we make a different decision?
He and I had a discussion, and I made a pitch. I said, "You know, gaming can be a real important consumer category for the company." He didn't quite understand it yet, not from an intelligence standpoint, but he just hadn't been close to it. But he was willing to make a bet on us as a team. And I said, "The thing I need, if I'm going to step into the role to head this group, is I need to bring it back together. I can't have my hardware team over there and the platform team over there, and first-party over there. I need to bring it back as a cohesive team." And he agreed to that. So I ended up working in the Windows division, but we brought all those pieces back together.
I think the reason I ended up in the job, frankly, was the other leaders were gone. I tease myself that I was the last person left at the table. and there's some truth in that. I want to make sure I keep my ego in check. It wasn't a clear, "You take the person who ran first-party and make them head of the platform." But frankly of the leaders that were there, I was the one that was left.
Craddock: As with so many entertainment mediums, the games industry has rock stars, developers and spokespeople who become the face of their studio or their studio's games: Sid Meier, Bruce Shelley, John Romero, Jade Raymond. It's a great way to create awareness, but one downside, I would think, is that when projects go sideways, those faces take a lot of the blame. Going into your new role with Xbox, you had a heavy load to carry. You were becoming the face of the platform, which meant you'd get all the blame if you couldn't get the Xbox brand back on track. What went through your head as you spoke with Mr. Nadella?
Spencer: The question for me was, do I stay at the company? Because I was going to stay in video games. I mean, at that point I had been in video games coming up on, what, 14 years? It's what I love. I've been in the games space since I could get hold of controller, so it was what I was going to do. So I think the question was, is the company going to stay in this space? And then, if so, you know, what's my role?
I don't think I felt like, like the job was too big. I felt a connection to the team. There are two things that drive me day to day in what I do: our customer, and our team. Those two things are just so critical. I'm lucky enough to have been at Microsoft for a long enough time. I'm not really doing it for the next dollar. I don't want another job. I don't want to be CEO of Microsoft. This is the job I want, and the team and our players are the things that really drive me. That was true at that point as well. So I thought, If we're going to go make a run at this, we have an amazing team, and I just wanted to empower them as much as I could and be part of that and continue to be continue to be part of that team.
Do I worry about failure? I fail all the time. It's one of those things I just have to get out of my psyche: Being afraid to fail. If I'm afraid to fail, then I won't be bold enough in the kind of decisions I need to make. But absolutely, you think about it. I don't like being as public as I am, and I know that'll probably seem weird given how public this role is. I'm an introvert. I'd rather be in my basement playing video games, so that part of the job is difficult. I laugh when people call me a PR person because I was never trained to do that. I don't even think I'm very good at it. but the role is head of Xbox and people want to see who that is.
Craddock: Either out of the gate or over time, consoles build an identify. Seamus Blackley and the other co-creators of Xbox envisioned a platform by developers and gamers, for developers and gamers. Xbox 360 magnified that identity and rolled in mainstream entertainment like Netflix. The Xbox One had a rough launch, as we've discussed. For you and your team, what was the process of reconfiguring Xbox One's identity? How did you hit on, for example, Game Pass as this driving force behind the system and the Xbox brand in general?
Spencer: In that 2014 moment, when we came together as our new leadership team, we really charted out, what does it mean for a trillion dollar market cap company like Microsoft to be in the games business? We're by far the biggest company that's kind of your traditional platform gaming company from a market cap standpoint. What we really hit on, with Satya's support, was that our identity should mean a few things. One was we should make the resources of Microsoft available to us to really go succeed in this category, and one of the pivots we made is we should really build our future strategy around gamers. Not our device, not our business model, not the one business model that works for us. If we really say, "Let's make as many decisions as we can from the perspective of what we think our players want," that's our guide.
There are certain times when we don't get that right. I'm not saying we're perfect. But Game Pass for us was just, "I want to be able to play more games" and "Why don't I play more games today?" One answer is, "Do I have access to the game?" We had to get more games on the platforms for people to play. Another barrier to me playing more games is, "I have to buy every game that I want to try. Can we use a subscription model that's working in music and working in video to increase the diversity of games that I try?" And consequently from that, hopefully, is the diversity of things that are built.
We see in the games business that when you get a hit—battle royale, PVP, whatever it might be— as an industry, naturally, we'll see so much of the creative go chase the last thing that was successful because in the end, these games have to make money put food on the table for the people who work in the industry. We wanted to create in Game Pass something where a diversity of creations can find real success without each one having to be a pure retail success. We thought that model could work.
We'd seen it in video where I think you've got more spend on video production now than ever before, absent COVID, through platforms like Netflix and Disney Plus and Hulu—everybody's investing in some really creative things. Things we didn't see on TV 20 years ago, and I think that's partially because you have this business model that is more of a fixed, growing business model than a hit-by-hit business model, and we thought that could be successful. It was really around putting players at the center.
Craddock: We've seen that even more recently, with products like Office and Adobe's suite of creativity apps transitioning from traditional boxed software to subscriptions. It comes down to the willingness of manufacturers to decide whether to keep doing things the way they've always been done, or try something new. Obviously, Microsoft still manufactures consoles; customers will be able to buy an Xbox Series X or Series S. But setting that aside, was the transition to putting a larger focus on a service and less on moving hardware units—which, again, is obviously still important—a hard sell within Microsoft?
Spencer: Yeah, but Microsoft was in the games business before we were in the console business. The internal discussion wasn't that challenging. I think we still kind of battle, but we still have the more public discussion surrounding that. Even this holiday, people are going to want to look at how many PS5s were sold versus how many Xbox Series S and Series Xs were sold and say, "Okay, there's a winner and there's a loser."
I just disregard that. Frankly, this holiday, supply is going to dictate how many consoles are sold more than demand. That battle is not going to be a reflection of demand. It'll be a reflection of supply. But also it's really about finding more players, and any business that's growing to scale, whether you're in the games business or not right now, in the consumer space is how do you go reach more and more customers? There are about 200 million console households on the planet, whether they have an Xbox or a PlayStation or some combination of those. That's the total addressable market for console players.
There are three billion play people who play video games. The biggest gaming platforms on the planet are Android and iOS. They're the ones that make the most money from video games. More than Xbox does, more than say PlayStation does. So for us, when we pitched the strategy internally around putting the player first and meeting them on the devices they're on, it was really a player-centered point of view that resonated with the company because of, as you said, things like Office 365 that were more customer centered than device or platform centered.
Craddock: Xbox Series X will be the first console you and your team have built together from conceptualization to release to post-launch support. What was involved in saying, "Okay, it's time to think about the next Xbox. What do we want? What are our priorities, and how do we build toward them?"
Spencer: Yeah, it was a great process. We wanted to reach as many players as possible. We think price point is important. That's why you see Series S and things like Xbox All Access so we can reduce the barrier to more people coming in. But we also know our core Xbox fans want Xbox to mean power. They're not all the players that recognize and feel that power, but for our core Xbox customers, people we love and we care about, we wanted to give them a console that was absolutely the most powerful console that anybody's creating, and that was the Series X.
We made some compromises in terms of our timeline where we waited longer than some of the competition to lock in our silicon and our plan because we wanted to get the specific platform that we were able to get with Series X, and we did that. It's been really great to see the team sending out the preview units and how proud they are and how confident they are to send those out so early before our launch. We've never done that before. And then to see the reports that are coming back, people will talk about the games and other things, but what they will say is "This is clearly a platform that was created by people who love video games and want the best in video games." That's just very heartwarming for the team because that's what we feel.
Craddock: I've been a believer in Microsoft's plan for Xbox since Play Anywhere was announced a few years ago, but one aspect I'm not sure of is the new console's name. Going from Xbox One X to Xbox Series X reminds me of Nintendo's awkward step from Wii to Wii U, where a lot of the mainstream didn't realize the Wii U was a new console and not a tablet upgrade. How did that conversation go internally?
Spencer: We thought through that scenario. When we announced the name, not everybody could see our plans. I understand some of the dialogue around confusion, but you can't buy a new Xbox One X right now. We're not manufacturing any more of them. So the scenario that I saw, certain people are going to walk in and there's like five Xboxes on the shelf: "Which one do I buy?" We knew when we were planning our branding that that wasn't going to be a real scenario. That if you go into a retailer on November 10th, you're really at most going to see three Xboxes. You're going to see the Series X at $499; you're going to see the Series S at $299; and you'll probably still see an Xbox One S at a lower price point.
The price points will be significantly different, but you're not going to have multiple Xbox Ones on the market. You're not gonna see the all-digital Xbox One or the Xbox One X. We think having three products on the market that have clearly different price points will work out, and all of the messaging will be around Series S and X from a marketing standpoint. Those will be the ones that people gravitate to. We there'll be clarity in that, but it's clearly one of the things that's on us: To deliver a clear message to consumers.
Craddock: I was disappointed, like a lot of Xbox fans, to learn of Halo Infinite's delay to 2021. But it got me thinking: In any other console generation, I'd worry about a console launching without its marquee game. Its Super Mario 64 or Halo: Combat Evolved. The Xbox Series X is different because we have Game Pass. For significantly less than the cost of a new AAA game, we can bring home a Series X and play hundreds of games on day one. Of course, the ideal scenario would be to have Halo Infinite launch alongside the Series X, but I do wonder if we've moved beyond the days of consoles needing to launch with the so-called "system seller."
Spencer: I wanted Halo Infinite at launch; there was no doubt about that, and we thought there would have been a special seminal moment because the last time we shipped a Halo and a console at the same time was the original Xbox. When Bonnie [Ross, head of Halo Infinite developer 343 Studios] and I were talking about it, there was something heartfelt about those two things coming together. But the safety and health of the team has got to be first and foremost, and then the quality of the game. Those things have to win over anything else.
And as I said, sales are going to be dictated by supply this holiday. I know there'll be press that will want to write, "Xbox launch lineup versus PS5 launch lineup." But if they're both sold out completely, I'm not sure the launch lineup had much impact on anything other than maybe some review score. It's not going to dictate what, how many consoles we sell. The number one thing that's going to dictate how many consoles we sell is not the competition and it's not a Halo or a launch lineup. It's going to be how many units we can build.
We see that. Our pre-orders sold within hours, and that's true of the competition as well. There is a high demand for gaming consoles right now, and we're both going to build as many as we can. So I think the possibility of Halo Infinite launching beside Xbox was more of a brand and heartfelt moment for us than it was critical to the launch. In fact, you could argue that holiday 2021 from a lineup is probably more important because from a competitive standpoint, both consoles—knock on wood—will have supply so there will be a demand constraint rather than a supply constraint in the next year.
But your point about Game Pass is absolutely right. I think this is going to be a console that launches with thousands of games because of back compat, and hundreds of games that you're going to get to go play day one. I remember the days when no compatibility was there. Xbox One was one of these: It had Killer Instinct, Ryse, Lococycle, and a few third-party games. But I lost access to everything I was playing on 360 for the most part. I like this world better, which is more continual, and gives people a lot more things to play.
Craddock: Earlier this year, I wrote a lengthy feature on how COVID has impacted game development. We've talked about how the pandemic has impacted, and will continue to impact hardware, and of course there's the delay of Halo Infinite. What are some other ways COVID has upended the normal process, relatively speaking, of building, shipping, and promoting a new platform that most people might not realize?
Spencer: I think you're absolutely right: Games have been impacted more than the hardware and platform timelines. There's no doubt about that. I think you'll see it in 2021 as well because of games that were mostly done, mostly content complete when everything locked down, they were able to continue but were delayed to next year.
From a hardware standpoint, I think the biggest issue for us is we haven't been on the supply chain line since January. Our teams that are the designers of the hardware and the Silicon would normally be sitting there on the supply chain line as the units are coming off, and testing them and ensuring the early evaluation units are exactly as we expected. There's been a real delay in that. You now have to ship these things here and get them tested. There are always early problems that you'd find and fix, like, six to nine months ago. That's just the debugging process of any new platform, and we're done with that now. But that iteration timeline took a lot longer and we were relying on a really, a remote process.
But the hardware timelines are pretty close to what we expected. There has been an impact to some supply, but not massive. So, the hardware side hasn't been as negatively impacted as I should worried about in March when everybody went to work from home, and I was like, "Okay, how do we ship a new console without actually being in one room together?" But kudos to the team, they were able to get it done.
Craddock: I imagine this answer might be somewhat different if I were to ask in a timeline without a pandemic, but how are you doing right now? What's still on your plate, and how is your mindset as we go through the final few weeks until launch?
Spencer: I feel really good and I feel very confident in the hardware. I love the fact that we've sent it out to so many preview people, and I'm hearing from them, "I could never go back," and "The S is really working the way I wanted" and "The X is really working the way he said." I think that that is all fantastic. The thing I miss the most, honestly, is the launch events with the fans. I remember on the Xbox One X launch event, we went to the Microsoft store in New York city. Celebrities were coming by, a bunch of fans were coming by. I love being part of the community of video games. I've always been into that. It's just kind of who I am.
My wife laughs and says this is the only job I'm qualified for. The fact that we're not going to be able to recreate that the same way is something that's weighing on me. I just met yesterday with the team on what can we do around launch to have that community feeling that we have around a launch. This is work because you have to keep people safe. Even pre-orders, normally people would be lining up outside of retailers the night before lunch. I don't know if that's a good idea right now. People should be social distanced and stay safe.
So, many of the things that have traditionally been part of a console launch are challenged, but, we have to realize we're video games, right? We're a leisure activity, we're an escape and entertainment. I'm glad that we're playing such an important role in the world right now, as people are looking for socialization and other things, but also people need to stay safe. When I think about the financial kind of challenges so many people are going through right now with layoffs and COVID and everything, I just want to keep us in context that the be all, end all on the planet is not us selling Xboxes. There are things that are more important than that, both for our teams and our customers, and that's important for us to keep in mind right now.
Check back this Friday to read 'Bet on Black: How Microsoft and Xbox Changed Pop Culture,' our next Long Read, as we delve into MIcrosoft's history in game development and publishing, and the events that gave rise to the original Xbox.
David Craddock posted a new article, Last One at the Table: Phil Spencer on Inheriting Xbox One and Launching Xbox Series X