these people are waiting to buy the Xbox
one console fans line up around the
world for the newest gaming consoles and
products but there's one place that's
never seen a reaction like this for Xbox
Japan in the early 2000s when Microsoft
launched the Xbox Japan was the gaming
juggernaut of the world Japan was home
to three big console makers Nintendo
Sega and Sony and Japanese game
developers were considered the best and
most revolutionary on the planet around
the time as a launching the Xbox
Japanese game developers as the most
important in the world the success of
any new game platform depended in large
measure on whether or not you can get
the best Japanese game developers and
their titles more importantly on your
platform so when Microsoft launched the
Xbox in 2001 the gaming world was
suspicious of an American console made
by a company known for its software not
its hardware they were kind of perceived
as the bad guy coming into the Japanese
market kind of invading the homeland and
competing with Sony and Nintendo all
three launches of the Xbox were a total
failure in Japan but at the same time
since its debut in 2001 the Xbox has
become one of the biggest consoles
globally the release of the Xbox one in
2013 was a huge success for Microsoft
for the three years following its
release the Xbox one was the world's
second most popular gaming console of
its generation the Xbox one has sold
almost forty six point nine million
units worldwide through the second
quarter of 2019 but only a tiny fraction
of global sales just 0.3% have been in
Japan
so why has the Xbox never caught on in
Japan despite its worldwide acclaim
elsewhere
when Microsoft started developing the
Xbox in 1999 it wasn't known as a gaming
company its reputation was all about PCs
its office products and a big antitrust
lawsuit Microsoft had a PC gaming
business in the late 90s known for
Microsoft Flight Simulator and Age of
Empires developing the Xbox was all part
of Microsoft's plan to bring its
technology into consumers homes Sony was
the leader in the consumer electronics
market in the early 2000s its
PlayStation 2 was considered a threat to
Microsoft for its potential to replace
PCs as a way to get internet access at
home
Bill Gates's motivation was more about
maintaining Microsoft dominance and
position and ecosystem of software bill
really got it because games are software
that is entertainment that can stand
right alongside a movie Denyce Chowdhury
a designer who worked on the original
Xbox remembers that Microsoft got into
gaming as a challenge to Sony Bill Gates
wanted to get Microsoft's technology
into Sony consoles so he went to Japan
and suggested a partnership Microsoft
Bill Gates specifically saw an
opportunity to take something that was
established that Sony was already doing
the PlayStation and sort of integrate
technology and software that Microsoft
was the master of which was home
computing and kind of bring that
together sony was not interested
sony was basically like thanks but no
thanks and Bill Gates said okay then
I'll do it myself
video game journalist Dean Takahashi
thinks companies were weary of working
with Microsoft because of its antitrust
lawsuits
already and I trust cases happening
against Microsoft and everybody knew
that if she if you sort of let them in
the door it was kind of like a church of
course you might lose control of your
business the way say the PC makers like
IBM had lost control of the business
this wasn't the first time Microsoft
would hear a no from a Japanese company
on the Xbox
Chowdhury says Mitsumi the company that
made circuit boards for Sony's
PlayStation controllers at the time
refused to make a circuit board for
Microsoft Mitsumi could have jeopardized
its relationship with Sony by giving
Microsoft the same technology Mitsumi
didn't respond to CNBC's requests for
comment
so child you had to use a larger circuit
board for the Xbox controller Microsoft
moved quickly to launch the Xbox the
consoles hit shelves in the US in
November 2001 and in Japan in February
2002 later than expected Microsoft has
released three consoles in the Xbox
series the Xbox the Xbox 360 and the
Xbox one while all three console
releases failed in Japan the Xbox was a
huge hit elsewhere in the world
Microsoft eventually secured the coveted
number one spot in the global market
from 2011 to 2012 with the Xbox 360
nobody expected we were going to be a
hit product in Japan we understood what
the playing field was like and we were
just trying to not embarrass ourselves
Sega and Nintendo and Sony dominated the
video game market in Japan when
Microsoft came onto the scene before the
Xbox launched sony and nintendo devices
accounted for basically 100% of the
global video game market and not much
has changed since then as of 2019 sales
of the Xbox don't even begin to rival
that of a PlayStation 4 or Nintendo
switch there are three main reasons the
Xbox console didn't sell well in Japan
today game developers are from all over
the world but in the early 2000s most of
the best developers were Japanese and at
the time the Xbox launched Japanese game
creators were hesitant to put their
content on a console that wasn't popular
in Japan Japanese gamers and developers
favored role-playing games over the
shooter style games that were more
common in the u.s. in order to convince
gamers to switch to Xbox Microsoft
needed big-name Japanese developers to
defect from Sony and Nintendo and
developers saw pros and cons in
defecting to Microsoft the graphics
power of the Xbox and his ability to
create realistic games exceeded other
consoles at the time we were pretty
successful convincing them that Xbox
represented a platform would enable them
to do new and interesting things and
most importantly would enable them to
sell those games to a Western audience
but for many developers the
disadvantages outweighed
potential upside some game creators like
the Xbox's hard drive which was faster
than the PlayStation cd-rom but they
worried the high cost of Microsoft's
technology would drive consumers away
and then there was loyalty it was really
difficult to convince a developer who'd
already had a relationship with Sony and
Nintendo to take a gamble on Microsoft's
unproven Xbox the second problem is that
the Xbox was just too big it was huge
and Japanese homes were small that was
sort of one of the first things that
made the Japanese people wonder is this
company know what it's doing the
controller was another problem
PlayStation used a folded circuit board
made by Mitsumi in its controller it was
a single circuit board cut in half and
stacked so that it was smaller than a
typical circuit board Microsoft's team
asked Mitsumi for the same circuit and
Mitsumi simply said no they would not
budge they would not give us the same
circuit board since Microsoft couldn't
get the folded circuits from Mutsumi it
had to make do with large circuit boards
meaning the controller was bulky that
controller never actually launched in
Japan so we can't know how Japanese
consumers would have reacted to it the
Xbox team instead expedited production
on a smaller controller called the
controller s4 the Japanese launch
Chowdhury says even Microsoft's own team
in Japan refused to endorse the Xbox
because of its bulky design finally
timing was also a problem for Microsoft
the company delayed its Japan launch to
February 2002 that meant that the
console and game developers missed the
crucial holiday period in Japan when
kids got money from family members to
celebrate the new year
the Xbox 360 was Microsoft's most
successful console with Japanese
consumers so what made it less of a flop
in Japan with the Xbox 360 M Microsoft
tried to address a few problems that had
with the Xbox first Microsoft planned to
launch the console ahead of a holiday
season and before Sony launched its
competitor the PlayStation 3 Microsoft
also worked with a Japanese design for
him on the new console and collaborated
with Japanese creators to make games for
the Xbox but that didn't make a dent in
Playstations hold on Japan sales in
Japan of a PlayStation 3 which launched
in 2006 vastly outnumbered sales of the
Xbox 360 which launched one year earlier
Microsoft's next console the Xbox one
also had a strong start when it was
released in 2013 Microsoft sold more
than 2 million of the Xbox one consoles
globally in 18 days breaking a record
for the company but in Japan the Xbox
ones are yet another lackluster response
of the 46 point nine million Xbox one
sold worldwide through the second
quarter of 2019 less than half of a
percent of them have been in Japan for
comparison PlayStation 4 has sold ninety
nine point eight million units globally
through q2 2019 with eight point six
percent of them in Japan in a statement
to CNBC Microsoft said Japan remains an
important part of our global gaming
community and a major contributor to
Microsoft's future plans we're committed
to bringing innovative and homegrown
content from Japan's leading game
creators to a global audience
but Microsoft's inability to appeal to
Japanese consumers may be the least of
its problems right now global sales of
the Xbox one have been lackluster as
users shift more to mobile and streaming
games
analysts say is a problem impacting all
console makers in Microsoft's earnings
release for the quarter ended June 30th
2019 the company said Xbox hardware
revenue declined 48 percent primarily
due to a decrease in volume of consoles
sold experts say Microsoft is adapting
to a video game future that's not
dependent on hardware sales by selling
subscriptions to game libraries why is
the Xbox 360 doing so well or wise are
other people's things doing well it's
that software capability and that's a
bet that we made at the beginning of the
company in fiscal year 2018
Gaming revenue increased 14% compared to
fiscal year 2017 driven by Xbox software
and services growth Microsoft noted that
Xbox hardware revenue was lower
Microsoft's 2018 annual report shows its
shift away from hardware dependency the
surge in popularity of streaming gaming
has fundamentally changed Microsoft's
relationships with one of its longtime
rivals Microsoft and Sony made a
surprising announcement in May 2000 19
they're working together to develop game
streaming technology using Microsoft's
cloud cloud gaming allows players to use
any device with an internet connection
to play games and Microsoft has made
several big moves in the space including
plans for a new cloud streaming service
called Project X cloud that would allow
users to stream their entire Xbox one
libraries to mobile devices the
partnership comes as giants like Google
are getting into gaming by developing
its own cloud gaming service that
represents a seismic shift in video
games with faster internet speeds games
can be played without a console on a
cell phone or a computer cloud gaming is
projected to be less than 2% of the
forecast total games market by 2023 but
Japan is poised to be a leader there in
2018 Japanese consumers accounted for
about 46 percent of the 387 million
dollars consumers spent on cloud gaming
worldwide Microsoft knew Japan was going
to be its most challenging market but
blackly says sales figures aren't the
only way to measure the market in the
long run Microsoft didn't mean Japanese
consumers to make billions of dollars
when the console launched it was crucial
for Microsoft to get Japanese game
developers on board but Japanese
consumers were less of a priority the
issue with Japan was never the amount of
revenue that are represented the issue
was the amount of revenue that the games
from Japanese developers represented
blackly says the Xbox changed the
philosophy on game development you know
one of the things about game consoles
prior to Xbox was that the hardware is
arcane Xbox had a different philosophy I
really had the
idea that the biggest market could be
addressed and can be captured by
Microsoft through democratizing game
development through making the tools of
game development widely available easier
you