The original Xbox console was short-lived compared to a typical console generation, and now we have the very simple reason why: it was a financial disaster for Microsoft.
It’s fairly common knowledge that Microsoft lost more than $4 billion dollars on the OG Xbox, and it’s probably also pretty common to infer that that’s the reason it was killed ahead of schedule to make room for the Xbox 360, but now we know that to be explicitly true thanks to the guy who was in charge of Xbox at the time.
Former Xbox boss Peter Moore appeared on the Gamertag Radio podcast (timestamped here) and at one point was asked why Xbox decided to end its first console early.
“We were losing money right left and center on the original Xbox,” said Moore. “When your install base and your attach rate to the install base are so out of sync… We knew where we were going with high definition, with broadband in particular, and the legacy platform, the original Xbox, wasn’t going to deliver that.”
Microsoft clearly learned from its mistakes with the Xbox 360, which was the best-selling console of its generation in the US despite the prevalence of the infamous “Red Ring of Death” that plagued a massive number of early-gen units and cost Microsoft more than a billion dollars. There aren’t many companies that can take such a staggering financial loss and keep going, and thankfully Microsoft is one of them.
“There’s an inflection point,” Moore continued. “There’s a law of diminishing returns in video games that if you haven’t sold in enough units, and even worse if your attach rate of software to hardware is below where you were projected, you’re just hemorrhaging cash. And we were. I mean the good news is we were Microsoft, so we could afford to hemorrhage cash, taking the long view of where we wanted to go in the industry, but at the same time it just made no sense [to keep going with the original Xbox].”
