WeasteDevil
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http://venturebeat.com/2008/09/05/x...istory-of-microsofts-video-game-console-woes/
Selected excerpts....
And almost still does very well does PS2.
Selected excerpts....
Microsoft knew it had flawed machines, but it did not delay its launch because it believed the quality problems would subside over time. With each new machine, the company figured it would ride the “learning curve,” or continuously improve its production. Even though Microsoft’s leaders knew their quality wasn’t top notch, they did not ensure that resources were in place to handle returns and quickly debug bad consoles. There were plenty of warning signs, but the company chose to ignore them. The different parts of the business weren’t aligned.
Microsoft’s strategy depended on beating its rivals to market. It couldn’t afford to stop and delay the launch in order to solve its quality problems, or so upper management believed. What Microsoft’s leaders didn’t realize was that getting to market first with a flawed machine would only win them a battle; and it risked the loss of the war.
“Fundamentally, their thinking shows that they are a software company at heart,” said one veteran manufacturing executive. “They put something out and figure they can fix it with the next patch or come up with a bug fix.”
But the evidence for the quality debacle was there to see even before Microsoft shipped any machines. In August, 2005, as Microsoft was gearing up production, an engineer raised a hand and said, “Stop. You have to shut down the line.” This wasn’t just a brief moment. The engineer spoke up repeatedly.
That engineer, who asked not to be identified, had deep experience in manufacturing. When production results were really off kilter, stopping a line and tracing a problem back to its roots was the answer. But the higher-ranking engineers, managers and executives chose to risk going forward. There wasn’t a universal backlash from the engineering ranks, according to one engineering source.
The defect rate for the machines was an abysmal 68 percent at that point, according to several sources. That meant for every 100 machines that Microsoft’s contract manufacturers, Flextronics and Wistron, made at their factories in China, 68 didn’t work.
There were plenty of warning signs. Early reports on the problems were myriad. In an Aug. 30, 2005 memo, the team reported overheating graphics chip, cracking heat sinks, cosmetic issues with the hard disk drive and the front of the box, under-performing graphics memory chips from Infineon (now Qimonda), a problem with the DVD drive, and other things.
The initial yield on the most critical chip, the three-core microprocessor designed and manufactured by IBM, was only 16 percent. For every 100 produced, only 16 worked.... IBM had an easier time than the maker of the graphics chip.
ATI Technologies (a graphics chip maker that has since been acquired by Advanced Micro Devices) was late to deliver working graphics chips, or GPUs. Like IBM, it had promised to deliver one of the most complex chips it had ever made in about half the time it usually took to create such chips. But ATI only had half the number of the 400 engineers IBM had on the project.
The fact that both companies had designs done at all was the result of a Herculean effort. Microsoft’s engineers started working on the Xbox 360 at least a year after Sony’s engineers began work on the PlayStation 3, yet Microsoft wound up shipping a year ahead of Sony. Everything Microsoft did was under time pressure... Microsoft’s hardware engineers in Redmond, Wash. and Mountain View, Calif. were the master integrators of all of the suppliers. The Microsoft chip designers in Mountain View also designed an important video processing chip themselves.
Outsiders frequently slam Microsoft’s hardware engineers as having a software (fix it later) mentality. But Microsoft’s engineers had been trained to put quality first. Most of them had years of training. Holmdahl, for instance, had been with Microsoft in the early days of its hardware division. By the time he joined the Xbox project, he was a veteran... In 2001, the team went through the paces making sure that the original Xbox had good quality.... the Microsoft hardware team had come out shining. Aside from a problem with a supplier’s DVD drive, the number of defective Xboxes was low. After the DVD drive issue was fixed, yields rose above 90 percent and stayed there for the duration of the manufacturing. Microsoft thus had a seasoned team to work on the Xbox 360.
Bill Gates didn’t really care about the losses in the first generation. That was simply the ante for getting into an exciting new business. Microsoft has always viewed its ambitions in the game business as strategic. It isn’t in the business just to dominate video games, but to own the living room. The game console is a kind of gateway to the Internet and all of the future entertainment services that can be piped into the living room.
But Steve Ballmer, who took over from Gates as CEO during the first generation, really wanted the Xbox business to be profitable second time around. He wanted to keep the foothold in the living room, but not at the expense of draining Microsoft’s cash, which was needed to fight Google and other rivals.
Leading up to the launch in the fall of 2005, the number of defective units would soon grow to tens of thousands. Any other consumer electronics company would likely have postponed a launch with such low yields. But Microsoft had more money in the bank than anyone else. The decision this time would fall to Bach and Moore. The costs of launching with low yields — where you take big losses on every product sold — could bankrupt other companies. But Microsoft could afford to do so. Microsoft did delay the launch date from October until November. But some inside the company still believed returns would be out of control.
Some of the defects were “latent.” That means they may not show up for some time after the consumers starts playing with the machine. Latent defects can be as high as 50 percent of all defects. That means if you have a low yield to start with, you expect to have a lot of returns when the latent defects kick in later on. Bach said that the real problems with the Xbox 360s didn’t really show up until a year after the launch. That’s when returns were mounting, when they should have been declining.
The yield problem was only discussed internally, and so the public at large was left wondering whether Microsoft was intentionally creating a shortage of consoles by making just a small number of machines. The truth was that Microsoft had to produce a lot of units — many of which failed — to get working consoles that it could ship. It was trying to get as many machines to the market as it could.
“There were so many problems, you didn’t know what was wrong,” said one source of the machines. “The [test engineers] didn’t have enough time to get up and running.”
On Nov. 22, 2005, Microsoft started selling the consoles. It invited 3,000 gamers to come to a hangar in the middle of the Mojave Desert. Gamers rushed into the hangar doors like Greeks rushing into Troy. There, they played the first games for 30 hours and were rewarded with the chance to be the first to buy the machines..... The consoles started failing almost immediately. Consumers were excited about being the first on their block to own the new system. They could run graphically beautiful games on high-definition flat-screen TVs, which were just becoming affordable. But their disappointment upon encountering the red rings of death was evident in posts on the Internet. Some customers swore off Microsoft. At the time, Microsoft said that it had received “isolated reports” of console failures and that returns were within the normal range.
Despite the problems, some results were turning out better than expected, such as how quickly Microsoft would sign gamers up for its Xbox Live online games service. (That figure has now hit 12 million subscriptions for both paid and unpaid subscriptions, more than originally forecast).
But some things, Microsoft clearly didn’t plan for. The complaints of shortages and problems with consoles continued into the spring of 2006. By the end of March 31, Microsoft said it had shipped more than 3.3 million consoles to retailers. There was a growing “bone pile” in a warehouse at Wistron and at a repair center in Texas.
Microsoft had more than 500,000 defective consoles that sat in warehouses. They were either duds coming out of the factory or they were returned boxes, according to inside sources. The yield was climbing, but far too slowly. The company stood by its statement that returns were within “normal rates for consumer electronics products.”
Because Sony and Nintendo didn’t have their new machines ready yet, Microsoft had a wide-open field in 2006. It was racing to snare the most customers before the rivals could compete. But the cheaper priced and older PlayStation 2 continued to outsell the Xbox 360 throughout 2006.
And almost still does very well does PS2.
