Creation and development
Before the Xbox, Microsoft had found success publishing video games for its Windows PCs, releasing popular titles such as Microsoft Flight Simulator and the massively successful Age of Empires after the creation of DirectX, the application programming interface (API) that allowed for direct access of the computer hardware and bypassing Windows.[22] However, the company had not entered the home console market of video games, which was dominated at the time by Sony's PlayStation. Sony was working on its next video game console, the PlayStation 2 (PS2), announced officially to the public on March 2, 1999, and intended for the system to act as a gateway for all types of home entertainment. Sony presented a vision where the console would ultimately replace the desktop computer in the home.[23] Microsoft CEO Bill Gates saw the upcoming PS2 as a threat to Microsoft's line of Windows PCs, worrying that the all-encompassing system could eliminate consumer interests in PCs and drive them out of the market. With video games rapidly growing into a massive industry, Gates decided that Microsoft needed to venture into the console gaming market to compete with Sony. Previously, Sega had developed a version of Windows CE for its Dreamcast console to be used by game developers. Additionally, Gates had directly approached Sony CEO Nobuyuki Idei before the public announcement of the PS2 regarding letting Microsoft develop programming software for the console. However, the offer was declined by Idei in favor of having Sony create proprietary software.[24] Microsoft had also attempted to meet with Hiroshi Yamauchi and Genyo Takeda of Nintendo to potentially acquire the company, but Nintendo declined to go further.[23][25]
In 1998, four engineers from Microsoft's DirectX team—Kevin Bachus, Seamus Blackley, Ted Hase and DirectX team leader Otto Berkes[26]—began discussing ideas for a new console which would run off Microsoft's DirectX technology.[27] Nat Brown, the Windows Software Architect at Microsoft, would also become a regular contributor to the project after meeting Hase in November 1998. The project was codenamed "Midway," in reference to the Battle of Midway during World War II in which Japan was decisively defeated by American forces, as a representation of Microsoft's desire to surpass Sony in the console market.[24] The DirectX team held their first development meeting on March 30, 1999, in which they discussed issues such as getting a PC to boot at a quicker pace than usual.[24] The console would run off Windows 2000 using DirectX 8.1, which would allow PC developers to easily transition into making games for the console while also granting it a larger processing power than that of most other home consoles.[28] According to Blackley, using PC technology as the foundation for a video game console would eliminate the technological barriers of most home consoles, allowing game creators to expand further on their own creativity without having to worry about hardware limitations.
The 4 DirectX team members encountered disagreements with the Silicon Valley engineering team behind WebTV, which joined Microsoft after they purchased the rights to the device. Microsoft executive Craig Mundie wanted the project to be led by the WebTV team, who believed the console should be built from the ground-up as an appliance running off Windows CE; however, the DirectX team were adamant about the idea of repurposing PC hardware components, such as a hard disk drive, arguing that they were cheaply manufactured and could easily be updated every year. The 4 developers gained the support of Ed Fries, the head of Microsoft's gaming division, who believed the use of a hard drive, in particular, would give the console a technical edge among competitors despite its high manufacturing cost. The two opposing teams pitched their arguments to Gates on May 5, 1999, at a meeting attended by over twenty different people. WebTV's team, among whom were Nick Baker, Dave Riola, Steve Perlman, and Tim Bucher, and their sponsor, Craig Mundie, made the case that creating an appliance would be far cheaper, highlighting that most consoles were generally sold at around $300. They also wanted to use a custom-made graphics chip, which could be shared across several different home devices. Conversely, Fries, vouching for the DirectX team, argued that using a PC hard drive would set Microsoft's console apart from competitors by allowing for the direct implementation of online access, an argument which Gates sided with. When Gates questioned if PC games could be effectively ported to the new console, Blackley explained that the machine would utilize DirectX hardware, meaning that they could be converted easily. Gates heavily favored this proposition over WebTV's, whose concept relied on Windows CE, a heavily stripped-down Windows variant that was not compatible with DirectX. As such, Gates sided with the DirectX concept and gave Berkes' team permission to create a new video game console. Despite this, WebTV would still play a part in the Xbox's initial launch.[24][23]
Rick Thompson and Robert J. Bach were responsible for overseeing the Xbox's design. The DirectX team began constructing prototype consoles, purchasing several Dell computers and using their internal parts.[30] Initially, it envisioned that after designing the console, Microsoft would have worked with a third-party computer manufacturer to mass-produce the units. However, the early work showed that this would need to be something that Microsoft would have to produce themselves, making the prospect a far more costly operation; the name "Coffin Box" became associated with the project as there were fears the project would end careers at Microsoft.[23] Further, as a gaming console, they could not provide the direct Windows interface to users. While Thompson and Bach had warned Gates and Steve Ballmer about these large-scale changes from the initial proposal in late 1999, the matter came to a head at a February 14, 2000, meeting, informally referred to as the Valentine's Day Massacre, in which Gates furiously vented about the new cost proposal and massive changes in this console from what had been previously presented, since the Xbox appeared to marginalize Windows.[23] However, after being reminded that this was a product to compete against Sony, Gates and Ballmer gave the project the go-ahead along with the necessary marketing budget.[23]
Throughout the console's prototyping, Microsoft was working with AMD for the CPU on the system. According to Blackley, just prior to the system's reveal in January 2001, the Microsoft engineers opted to switch to an Intel CPU, a fact that had not yet been communicated to AMD prior to the reveal.[31]
Among the names considered for the new console were a number of acronyms, including "Windows Entertainment Project" (WEP), "Microsoft Total Gaming" (MTG), "Microsoft Interactive Network Device" (MIND), and "Microsoft Interactive Center" (MIC).[32][33] Also among the names considered was "DirectX Box", referring to the system's reliance on Direct X. At one point, Hase jokingly came up with the names "XXX-Box" and "DirectXXX-Box" as a nod to the system's higher volume of adult content compared to Sony or Nintendo's consoles.[34] "DirectX Box" was quickly shortened to "Xbox" through an e-mail conversation, and was ultimately favored by the development team, though a number of spelling variants were tossed around, such as xBox, XboX, and X-box.[32][34] Microsoft's marketing department did not like this name, suggesting "11-X" or "Eleven-X" as alternatives.[32] During focus testing, the company put the name "Xbox" on the list of possible names simply to prove how unpopular the Xbox name would be with consumers. However, "Xbox" proved to be the more popular name on the list and was thus selected as the official name of the product.
When the physical design of the controller began, circuit boards for the controller had already been manufactured. Microsoft had asked Sony's supplier, Mitsumi Electric, for a similar folded and stacked circuit board design used in Sony's DualShock 2 controller, but the company refused to manufacture such a design for Microsoft. This led to the controller being bulky and nearly three times the size of Sony's controller. This initial controller design was never launched in Japan. The console instead launched with a smaller, redesigned version named "Controller S" that did use the more compact circuit board design.
As the development team began to tighten down the design of the Xbox, they got help from Flextronics not only in revising the design but in mass production, creating a factory in Guadalajara, Mexico, for this purpose. Early production units had a high failure rate of around 25%, which Flextronics repaired. Later iterations of the hardware design worked to eliminate these failures.[23]
