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Robbie Bach told the story of intrapreneurship by comparing two startups within Microsoft:  Xbox and Zune.  When the “e” in entrepreneur is replaced with an “i,” intrapreneur, many of the same rules apply and businesses succeed and fail for many of the same reasons.  Robbie is in a unique position to discuss Xbox and Zune, as he led the Microsoft (MS) division that was responsible for developing both of these products.  Robbie bucked MS tradition by deciding not to use a PowerPoint for his NWEN presentation. 

Xbox is the MS console gaming product.  Zune was the MS portable music player.  Xbox and Zune started in similar ways.  Both started from proposals made at MS executive staff retreats.  Xbox was proposed in 1999 and Zune was proposed in 2005.  Both projects were driven by competitive pressures.  By startup standards, both were very well funded.  They were treated as startups.  People from different areas of the company and from outside of the company were brought in to build these products.  It was Robbie’s job to get all of these people with diverse backgrounds to work together.
Xbox became a very successful product, but Zune did not.  What happened?

Discontinuities.  Xbox focused on two discontinuities, or disruptions in expectations.  Firstly, MS decided to put a hard drive in its console, which was a different way to think about video games.  The hard drive enabled downloading from the Internet.  Secondly, MS took the modem out of the Xbox and relied on broadband Internet.  Broadband Internet was not a sure thing at that time.  MS bet on the Internet and online gaming.

Zune missed the big discontinuities.  The portable media player market was gone.  Instead of skipping portable media players, MS ended up chasing Apple.

Marketing message.  Through Xbox’s marketing and branding, people could see the...
see more Robbie Bach told the story of intrapreneurship by comparing two startups within Microsoft:  Xbox and Zune.  When the “e” in entrepreneur is replaced with an “i,” intrapreneur, many of the same rules apply and businesses succeed and fail for many of the same reasons.  Robbie is in a unique position to discuss Xbox and Zune, as he led the Microsoft (MS) division that was responsible for developing both of these products.  Robbie bucked MS tradition by deciding not to use a PowerPoint for his NWEN presentation. 

Xbox is the MS console gaming product.  Zune was the MS portable music player.  Xbox and Zune started in similar ways.  Both started from proposals made at MS executive staff retreats.  Xbox was proposed in 1999 and Zune was proposed in 2005.  Both projects were driven by competitive pressures.  By startup standards, both were very well funded.  They were treated as startups.  People from different areas of the company and from outside of the company were brought in to build these products.  It was Robbie’s job to get all of these people with diverse backgrounds to work together.
Xbox became a very successful product, but Zune did not.  What happened?

Discontinuities.  Xbox focused on two discontinuities, or disruptions in expectations.  Firstly, MS decided to put a hard drive in its console, which was a different way to think about video games.  The hard drive enabled downloading from the Internet.  Secondly, MS took the modem out of the Xbox and relied on broadband Internet.  Broadband Internet was not a sure thing at that time.  MS bet on the Internet and online gaming.

Zune missed the big discontinuities.  The portable media player market was gone.  Instead of skipping portable media players, MS ended up chasing Apple.

Marketing message.  Through Xbox’s marketing and branding, people could see the difference.  Xbox was more powerful and was about Internet gaming.  People could see the future from the product.

The marketing message for Zune was confused and people didn’t get a clear picture of what the product was or where it was headed.

Partners.  The Xbox group found partners outside of MS that allowed Xbox to be successful.  For example, retailers supported Xbox disproportionately, because if they didn’t, then Sony, with PlayStation, would be the only game in town.

The music industry did not have the same reaction to Zune.  That industry didn’t figure out that Apple would be the only game in town without Zune.  The label business in the music industry has not recovered.

Competitors.  There was clear competition in both spaces.  Some of Xbox’s success results from Sony’s mismanagement of its 70% console gaming market share.  Xbox now has a 45 to 50% share in that market.

On the other hand, Apple executed incredibly well and has made remarkably few mistakes with its iPod.  It’s hard to get established in a market place if the competitors don’t make mistakes.

One of the points that Robbie reiterated in a few different ways is that starting a business inside of a big company is still building a startup.  You still need strategy, execution, a product and a culture that breeds success.  Some notable startups inside MS are PowerPoint, Azure and SharePoint, which are successes.  Bob, Kin and Zune failed.  Outside of MS, Amazon has two startups, iPod was a startup for Apple and the 787 was a startup for Boeing.  These businesses were startups because they were completely different processes for these companies.

There are complications in starting up a product in a big company that don’t exist for small startups.  One is the overhead of the company’s established brands.  That led to the decision to call the MS gaming console “Xbox.”  There were shareholders and people inside of MS that did not like the Xbox.  Bill Gates and Steve Ballmer did an amazing job of protecting the Xbox.  Both the startup business leader and the big company leaders must exercise extensive leadership skills to make it work.
Robbie distinguished between innovation based on inspiration versus innovation based on necessity.  The two are different processes to manage. 

Funding is an obvious difference between big company startups and other startups.  One of the side effects of having more funding is the way cash is managed.  For example, when there is more cash, the team can get two bids on something and chose one.  Unless care is taken, this can let the team off the hook in being thoughtful about the process.  MS went through a one billion dollar write-off on Xbox, which was not a pleasant experience for Robbie.

MS produced the Xbox in 15 months development time, start to finish.  They could to it because they had Direct X, an established PC games business and established partnerships with original equipment manufacturers (OEMs).  In contrast, they had to be very disciplined about what went into the Xbox operating system and had to branch way off of the Windows tree to make the operating system small enough.

One of Robbie’s final points is that he believes in serendipity, that things happen in ways that you can’t control, but are good.  The key is to see the serendipity and take advantage of it.  Robbie is not a gamer, but he became the head of Xbox and it was the best 10 years of his life.  Another point Robbie made is that there is no substitute for hard work.  He says that he was not the smartest guy at MS, but he worked really, really hard and the Xbox team worked tremendously hard. 

Regarding building a team, most people are good at either innovation or execution, but not both.  You have to find the right balance between coming up with ideas and turning those ideas into reality.

Robbie left MS about 16 months ago.  He is on the board of directors for several organizations, including the Boys & Girls Clubs of America, the U.S. Olympic Committee, Sonos and the Bellevue Boys and Girls Club.  He is looking to buy a small family-owned business in the Seattle area.

Thanks, Robbie, for sharing your incredible knowledge of the Xbox and Zune successes and failures with us.


10 months ago