According to a former Microsoft exec, Microsoft entered the console market because Sony refused
to work with the company.
Joachim Kempin, who was VP of Windows Sales at Microsoft for 20 years starting in 1983,
made the claim in a recent interview with IGN.
When asked why Microsoft decided to enter the console space, he asserted that,
"The main reason was to stop Sony.
You see, Sony and Microsoft…they never had a very friendly relationship, okay?
And this wasn’t because Microsoft didn’t want that.”
Sony did license Windows for its PCs, but Kempin says the two companies were never friends.
But Microsoft wanted to cooperate because Sony was, in part, an entertainment business
-- an area outside of Microsoft’s expertise.
According to Kempin, as soon as Sony released the PlayStation, Microsoft said, “We have
to beat them.”
Bill Gates himself was apparently worried that a “living room PC” could eventually
threaten Microsoft’s traditional market.
As a result, Gates and Microsoft felt they had to try and tackle Sony head-on.
With hindsight we can see this worked out well for Microsoft, but there were many roadblocks
encountered along the way.
Kempin explained the main problem that still exists today is the huge loss made on hardware
manufacturing.
This means companies like Microsoft and Sony are reliant upon software sales to make a
profit.
Having witnessed Sony experience this issue at the time, Kempin went out in pursuit of
a PC manufacturer willing to take on the burden of making the Xbox in an effort to spare Microsoft
the financial apocalypse that accompanied it, but was unsuccessful.
He recounts, "I went out to several PC manufacturers and tried to beg them to do the Xbox thing
and keep the device manufacturing out of Microsoft.
The guys were smart enough not to bite, because they studied the Sony model and saw that Sony
could not make money on that hardware model, ever.
So they supplemented it with software royalties, and Microsoft copied that model."
Kempin continues: “Every developer who now has an Xbox game pays a small royalty to Microsoft
for the honour of having it on that system.
The other way they make money is that they finally got their act together on the services
and actually that’s where the money is being made.
So they’re just maybe a little bit above break even, that’s all there is.
This is not a big money-making machine for Microsoft."
What’s interesting about this story is that Sony got into the console hardware market
for similar reasons.
Sony had been working with Nintendo on an attachment for the Super Nintendo that would
play games off CD.
But when Nintendo canceled the agreement unexpectedly, Sony
decided to soldier on alone and released the PlayStation.
For all your video game news, stay tuned to IGN.