Peter Moore convinced Steve Ballmer to fix every faulty Xbox 360 despite a $1.2 billion cost. The Red Ring of Death affected 25% of consoles, but Microsoft's decision to replace them all saved the brand and led to the first profitable year.
In 2007, the executives behind the Xbox at Microsoft, they faced a decision that would decide whether the Xbox would live or die in the coming decade. You see, the manufacturing of the Xbox 360 during this time had had a fatal flaw. The welding— well, it was actually soldering, but you know, hey, Fallout reference— was actually done imperfectly, and nearly a quarter of the Xboxes on the market were dying from a thing called the Red Ring of Death. Basically, it would freeze up and you wouldn't be able to play it anymore. Head of marketing for the Xbox at the time, a guy named Peter Moore, well, he walked into CEO of Microsoft's office, Steve Ballmer. He said, man, I got some bad bad news. We could deal with this in several different ways. They're all bad. And one of them, well, if we honored all the warranty claims and fixed those Xboxes, we could take a $1.2 billion charge against profits. Turned out to be much worse than that, as they did free repairs, replaced units, all that kind of stuff. They ended up actually taking a billion-dollar charge in a single quarter. When interviewed later, Moore basically said if they hadn't have gone and bit the bullet here and backed up their promise to their customers to replace all these, Xbox as a brand, and maybe even Microsoft, might not even be alive today. Ironically, the this year was the Xbox division's first ever profitable year in history. The lesson here for business owners is sometimes the world gives you a choice between lemons or rotten lemons, and it's your job to figure out which direction you're going to take. And they're always bad choices. In this case, Microsoft made the right one and played the long game and lived to fight another day. If you're interested in a deep dive of the rise and fall of the Xbox and gaming division for Microsoft, I have a link to it in the comments below. It's a lot of fun because I did it out here in the forest with a hat on.
