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Crowds gather for an Xbox briefing in 2014, a pivotal era for the company’s games business, as documented in one of several case studies in the new book, The Insider’s Guide to Innovation at Microsoft. (Microsoft Photo)
[Editor’s Note: Microsoft @ 50 is a year-long GeekWire project exploring the tech giant’s past, present, and future, recognizing its 50th anniversary in 2025. Learn more and register here for our special Microsoft @ 50 event, March 20, 2025, in Seattle.]
Xbox was a product of Bill Gates’ paranoia.
Back in the late 1990s, the Microsoft co-founder actually wasn’t very interested in getting into video game consoles. But he and Steve Ballmer, who would soon become Microsoft’s CEO, were worried enough about Sony’s Playstation to give the project the green light.
“It was easy for Bill and Steve to imagine Sony moving from gaming on the TV to editing documents on the PC, which they saw as an existential threat to Microsoft,” write Dean Carignan and JoAnn Garbin in the new book, The Insider’s Guide to Innovation at Microsoft.
After launching the original Xbox in 2001, the team innovated in cloud gaming and social networking with Xbox Live in 2002, expanded the console’s functionality and footprint with the Xbox 360 in 2005 — and faced a huge backlash against the Xbox One in 2013.
Avid gamers rejected the concept of an entertainment-oriented, always-connected console with digital rights protections that would prevent them from playing used games.
Meanwhile, the inclusion of a Kinect motion sensor boosted the price to nearly $500, about $100 more than the rival PS4 — which initially outsold the Xbox One by a ratio of nearly 2:1.
It was a classic example of misalignment in a framework that had been expressed by J Allard, one of the original Xbox leaders, as “BXT,” or “Business, eXperience, and Technology.” Xbox One focused too heavily on business and technology, to the detriment of user experience.
Facing widespread backlash, Microsoft reversed course before launch, removing the always-online requirement and later unbundling Kinect to lower the price.
Two years later, in 2015, the company started to win back many of its loyal fans with backward compatibility, allowing the Xbox One to play many older Xbox 360 games.
In the ensuing years, Xbox reinvented its business model with its Game Pass service, and Microsoft expanded its footprint again with its $68.7 billion Activision-Blizzard acquisition.
“It’s funny how clearly you can see it in retrospect,” said Carignan, who was on the Xbox team at the time, describing the “BXT” misalignment in the original vision for Xbox One. “To the organization’s credit, they pivoted back, and they really changed the product itself.”
JoAnn Garbin and Dean Carignan are the authors of the new book, The Insider’s Guide to Innovation at Microsoft.
That’s one of several case studies in the book that draw universal business lessons from inside Microsoft. The book identifies recurring patterns in the company’s successes and failures by looking at different Microsoft products and teams in various stages and scenarios.
The book was written by two Microsoft business strategists and innovation leaders: Carignan, who now focuses on AI in the company’s office of the chief scientist, and Garbin, who created and led Microsoft’s Regenerative Datacenter of the Future program as part of its sustainability initiatives.
It’s a testament to Microsoft’s famed “growth mindset” under CEO Satya Nadella, but the authors don’t shy away from the company’s missteps. Instead, they examine those struggles to understand and explain what the company learned.
“One of the limitations in writing on innovation these days is that we often only see the successes, and we see the stories compressed down into this very rarefied form where it looks like it was easy, fast and without struggle,” Carignan said. With that in mind, he explained, “We decided we would tell both sides of the story.”
The book coincides with Microsoft’s 50th anniversary, but the case studies focus mostly on the past 20 years, including sections on Visual Studio Code, Microsoft Office, Bing, Cognitive Services, Microsoft Research, and the company’s approach to responsible innovation.
Listen to a conversation with Carignan about the book on this episode of the GeekWire Podcast, and continue reading for more highlights.
Microsoft’s Cognitive Services team, which helped the company gain early traction in artificial intelligence APIs, emerged from the failure of Windows Mobile and Windows Phone, the book explains.
When Microsoft realized it couldn’t win the mobile platform war, a small team decided to focus on serving mobile developers instead. The Cognitive Services team took existing AI models from Microsoft Research and made them available as cloud-based services that developers could easily integrate into their mobile apps.
They had senior-level sponsorship from Microsoft executive Harry Shum, which gave them the support and cover to focus on enabling others rather than building their own big organization.
“What I love about that case study is that they didn’t build a huge organization,” Carignan said. “They went out and they connected the teams that already had the bits and bytes to pull it together. And they were very, very purposeful about making sure their partner teams got all of the credit.”
Microsoft’s Bing team had to shift the company’s mindset from being the market leader to being the underdog challenger to go up against Google in internet search, as described in the book.
The Bing team developed very granular metrics to track small gains in market share, which allowed them to run experiments, make incremental improvements, and celebrate small wins.
They also got creative within tight financial constraints. Bing embraced new AI technologies like deep learning earlier than the broader search industry, because the constraints forced them to find more efficient ways to compete.
There is also a broader lesson for the company in this case study. “In the browser wars, the mid to late 90s, we were late, but we followed and we became dominant, and that did breed probably a certain amount of complacency, maybe even arrogance,” Carignan explained. “But what cured us of that was losing search.”
Seeing Google run away with the search market was “a real wake up call,” he said. “If a new business model and a new way of operating a company comes forward and gets enough momentum, you’ll never catch up.”
“And so I think that really cured the company of arrogance and complacency,” he said. “We would say things like, let’s not get Googled. Let’s not let that happen again. And I think it’s a characteristic of Microsoft to learn from those mistakes and to actually internalize and respond, and to not make the same mistake again.”
A few more takeaways from the book:
Companies need to create an environment that encourages and rewards risk-taking and good decisions, creating an opportunity to learn even when the immediate outcome isn’t successful.
Frequent, small-scale “flights,” rather than monumental releases, can reduce anxiety and encourage more experimentation and risk-taking. Microsoft Office, Bing, and others have adapted to this approach.
Connecting different parts of the organization through “boundary crossers” — people inside the company who bridge different groups — helps drive innovation by bringing together diverse perspectives.
While the book was written to resonate broadly, part of the goal was to make sure that people inside Microsoft have a deep understanding of what the company has learned and overcome in its 50 years.
“Once a company has reinvented itself once, it becomes easier to do it again, because you have the model for doing it, and you have the experience,” Carignan said. “It’s kind of like corporate neuroplasticity — the way our own brain can actually repeat things and do them over and over.”
The Insider’s Guide to Innovation at Microsoft is available now, published by Post Hill Press, with a foreword by Eric Horvitz, Microsoft chief scientific officer.
Listen to the full conversation above, or subscribe to the GeekWire Podcast in Apple Podcasts, Spotify, or wherever you listen.
Audio editing by Curt Milton.
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