Microsoft nearly killed the original Xbox in February 2000, with Bill Gates and Steve Ballmer coming close to canceling the console before it launched. Ed Fries says the team walked into that meeting knowing the project was expected to lose at least a billion dollars.
Fries said approval came for a reason that had less to do with games than with strategy. Microsoft saw Xbox as a hedge against Sony, which it viewed as a future threat not just because of PlayStation but because Sony was a Japanese company at a time when Japan seemed poised to rival the United States in technology and business. In a new interview, Fries said that fear shaped the decision. Microsoft employees could even choose to study Japanese in school alongside French and Spanish, he said, because the company was watching the rise of Japan so closely.
“It’s kind of hard to think about now if you weren’t there then, but everything we see now about the rise of, say, South Korea, and then China, and the rest of Asia where their economies are growing really fast — that was all Japan back then,” Fries said. “Japan was on track to pass the GDP of the US. Everybody thought that was going to happen.” He added that there was no bigger brand coming out of Japan than Sony at the time.
The timing mattered because Microsoft was still deciding whether to bet on a market dominated by Japanese rivals. The video game industry had already been through a collapse in 1983 before Nintendo revived it with the Nintendo Entertainment System, and by the time Xbox was under discussion, Microsoft’s competitors were still overwhelmingly Japanese, especially Nintendo and Sony. Fries said that even as the original Xbox struggled to win its place, the broader logic behind it was clear: Microsoft wanted a foothold in a business where its most important rivals were already shaping the future.
That is what makes the story of Xbox still resonate 25 years later. Microsoft approved a costly console as insurance against a competitor it feared could grow into something bigger, and the gamble paid off in a different way than the company first imagined. Xbox is now in third place behind Sony PlayStation and Nintendo, but it survived long enough to become part of the market Microsoft once worried it might have to defend itself against. That survival is the answer to the question the February 2000 meeting raised: the project was almost canceled, but Microsoft kept going because it thought the risk of doing nothing was even greater.
