How Do We Still Not Understand Xbox? (Premium)

In 1997, Steve Jobs returned to Apple, saved it from bankruptcy by simplifying its product offerings, and then engineered the greatest comeback in corporate history. We will be studying this master class in leadership for generations to come, but one of the most momentous decisions Jobs made during this time was to expand Apple beyond a single core product, the Mac, into new markets like MP3 players, smartphones, tablets, and consumer subscription services, each of which eventually surpassed the Mac. In doing so, Jobs transformed Apple from a computer company into a consumer electronics colossus that is now one of the two biggest companies on earth.

Everyone reading this is familiar with this narrative, I'm sure. But I suspect that most of you forget the impetus for this shift: the failure of the Mac. In the early 2000s, Jobs and his team from NeXT succeeded in modernizing the Mac OS software and creating an iconic and unique series of Mac computers. But none of these innovations moved the dial at all against Windows and the PC. Even in the nadir of the Windows Vista years, the Mac never accounted for more than mid-single-digit market share. Apple survived, but it was vastly diminished.

Or, it would have been had Jobs not set his Sauron-like gaze on the MP3 market, a shift that resulted in the iPod, a product that, by the way, also failed in the marketplace while it was tied solely to the Mac. But with the move to Windows compatibility and the opening of the iTunes Store, the iPod surged. In late 2002, the iPod and other non-Mac hardware accounted for just 10 percent of Apple's revenues. But by late 2006, the iPod and related products were outperforming the Mac by revenue---the Mac represented just 43 percent of Apple's revenues at the time---and Apple finished that year selling 5.3 million Macs and 39 million iPods. And then the iPhone arrived in 2007, changing everything by triggering a period of growth that would go on to make the iPod's successes look like a rounding error. In the most recent quarter, the Mac accounted for just 6.5 percent of Apple's revenues and few even remember that this company's name was once Apple Computer.

Failure has a way of clarifying things.

Related to that, one's reaction to failure can help determine whether they succeed or fail in the future. Jobs is a noteworthy example of making a lot of right decisions at the right times, but it was triggered by failure. Had the Mac succeeded to some degree---double-digit market share within a short period of time, pick your metric---Apple Computer would still exist today.

Well, Xbox failed too. And as I wrote over six years ago, losing the console wars was the best thing that ever happened to Xbox. Here, as with Apple, it was the reaction to this failure that guided the future. Microsoft could have simply done what I and others recommended and spun off or sold this business, freeing itself of a money-losing entity and the resulting drag on earnings.

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