Almost 20 years ago Microsoft was working to ensure its next operating system, Windows 95, would be a haven for PC gamers. At the time most thought DOS was the way to go for gaming; after all, it worked spectacularly for Doom and Quake.

So Microsoft created DirectX, a set of application programming interfaces (APIs) that made it easy for game developers to work with Windows. It debuted in September 1995 as the Windows Games Software Development Kit (SDK) and later became integral to Windows 95 OSR2 and Windows NT. But developers stayed away from Windows, believing the platform couldn't be trusted. Microsoft threw a Roman-themed game developer conference in 1996 to convince them otherwise. It helped turn the tide.

In fact, it worked so well that by 1998 Microsoft decided to build an entire game console around DirectX. A four-man team formed out of the DirectX team created the device, then called DirectX Box. Considering how bad the last American-created game console—Atari Jaguar—did in the market (sales were crushed by the Sony PlayStation and Sega Saturn in 1995), Microsoft's decision to go console was a brave move by a company known for software, not hardware.

The goal was based in part on a typical Microsoft strategy: seeing someone else do something successful, mimicking it, and hopefully crushing the competition at its own game. This time it hoped to crush Sony, poised to announce the PlayStation 2 in March 1999. Bill Gates, then chairman of Microsoft, was quoted in Upside saying, "Our game designer likes the Sony machine," when asked about the Sega Saturn. And if Gates thought it worked, he'd go after it.

The four men on the DirectX Box team (Kevin Bachus, Seamus Blackley, Ted Hase, and Otto Berkes) went to work disassembling Dell laptops and constructing a "console" to play games. They got Ed Fries, the head of Microsoft's game publishing division, on board as well. By late 1999 Gates was talking a lot about the console—dubbed Xbox after taking a hint from market testing.

By March 2000 the PS2 was on sale in Japan and the Sega Dreamcast was faltering. At that month's Game Developers Conference, Gates officially announced the Xbox console, though the actual box wouldn't be released to the public for another 18 months.

The Original Xbox

The Original Xbox

Before the Xbox even made it to shelves Microsoft had an ace in the hole. A killer app. A game that would firmly establish the Xbox and keep gamers coming back for sequel after sequel.

In 1999 developer Bungie Studios gave game industry reporters a taste of a first-person-shooter called Halo, and their jaws hung slack with awe. In July Steve Jobs, of all people, showed off the game at Macworld. Halo would run on both Windows and the Mac OS, and many thought it was going to be the game to put Mac OS on the map as a game-worthy platform. Of course, Microsoft wasn't about to let that happen. It bought Bungie in June of 2000 and Halo became an Xbox exclusive.

At CES in January 2001, Bill Gates and Dwayne "The Rock" Johnson took to the stage to show off the Xbox proper for the first time and announce the release date. Flash forward to November 14, 2001 and the Toys R Us in Times Square hosted the official launch, complete with an appearance by Gates.

Xbox

The $299 Xbox hit store shelves the next day in North America with Halo: Combat Evolved as a launch companion; the game got a subtitle from Microsoft marketing to ensure customers knew it was about fighting, not angels.

The Sega Dreamcast had left the market by that point, but Sony's PlayStation 2 was on its way to becoming the biggest selling console of all time, moving 150 million units worldwide. The Xbox didn't do quite as well, but it did sell a million units in three weeks. Halo was a big part of that.

Next were releases for Japan in February 2002, and Europe in March, where it wasn't exactly a barn-burner in either location. Finally in April Microsoft cut the price to $199. That meant no profit—the console cost more to build than that—but also meant moving a lot more Xboxes.

The Xbox had a lot of firsts: it was the first console with a hard drive, the ability to rip music from CDs, and real-time Dolby Digital sound. What it sorely lacked: online game play. Thankfully that followed quickly. Xbox Live arrived in November 2002 with a starter kit to get users into multiplayer games. More than 150,000 people signed up in the first week. Today, it claims 46 million members.

Not wasting any time, by early 2003 Microsoft was already working on the follow up, codenamed "Xenon."

But the original Xbox still had life left, not least of which was the launch of Xbox Live Arcade in 2004 and the release of Halo 2. That sequel sold 2.5 million copies in 24 hours, making it (at the time) the most successful media launch ever, bigger than any book, album, movie, or TV show. By summer 2013 Halo 2 was the all-time best-selling Xbox game, moving 8.49 million copies.

In the end, the original Xbox sold about 24 million units. It was discontinued in 2007 in Japan, and in early 2009 in North America.

Xbox 360

Xbox 360

It took a couple of years for project Xenon (also known as the Xbox 2, XboxNext, or NeXtBox) to come to market in 2005. The Xbox 360 was a seventh-generation console in direct competition with Sony's PlayStation 3 and Nintendo's Wii. Microsoft actually beat both of them to market in North America, Japan, and Europe.

But first a lot of work was needed to build a game platform capable of more than gaming. In 2003 Microsoft was getting the right people in place (it nabbed Peter Moore, a former president and COO of Sega America and the exec who pulled the plug on Dreamcast) and setting up relationships (for example ATI became the official graphics chip supplier long before the 360 even existed).

It launched November 22, 2005 in the States and Canada; in Europe and Japan it launched a couple of weeks later. Due to a late start in production the 360 sold out in the United States and Europe almost instantly. More than 1.5 million units were sold by the end of the year. In 2006 Microsoft made a global push, launching in 36 countries, including South Africa, India, and Russia.

Xbox 360 Arcade

In the end, Microsoft and Sony both sold about 80 million consoles, coming in second to the Wii's 100.3 million.

The original Xbox was never big in Japan, but the 360? Even worse! By 2011 it had sold only 1.5 million units; the original sold two million.

And of course there were problems. The failure rate of the early 360s was pretty phenomenal and gamers learned to fear the Red Ring of Death. It was so bad Microsoft extended the manufacturer warranty on all 360s to three years.

In the markets where it is big, the Xbox has continued to innovate in SKUs, if not technology. The 360 started in 2005 with a Core unit priced at $299.99 and went through a number of iterations since then, including Premium, Elite, Arcade, and Super Elite. In 2011 it underwent a transformation to a "Slim" model that also integrated a hard drive and Wi-Fi among other upgrades. Even the power brick got smaller. The so-called Xbox 360 S however, doesn't have the three-year warranty anymore, but also apparently doesn't need it as much.

Xbox 360s

In the 360 era Microsoft diversified Xbox Live, offering a paid online service (called Gold) alongside the free one, necessary for all the good stuff like multiplayer gaming and streaming videos through third-party apps such as Netflix. It also launched Xbox Live Marketplace for downloading content, Live Arcade for downloading games, and Xbox Smartglass apps for controlling the Xbox via tablets or smartphones.

No 360 innovation wowed the world quite as much as Kinect. The $150 add-on mixes a VGA camera with a motion/audio sensor for users to control a game—or indeed, the entire Xbox 360 interface—with gestures or audio commands. It's been out since November 2010 and is so integral to the experience that the next-generation Xbox—the Xbox One—ships with Kinect in the box (the main reason it's $100 more than the PlayStation 4). The best-selling game for the Xbox 360 is Kinect Adventures, which came bundled with the device. (The next best-selling game was Call of Duty: Modern Warfare 3.)

Xbox One

Xbox One

The first signs there would ever be an Xbox 360 follow-up was in the movie Real Steel starring Hugh Jackman. In the background was an advertisement for the "Xbox 720," the rumored name until the Xbox One was finally unveiled in May this year. Supposedly the hardware and developer kit has been out since 2012, giving game makers plenty of time to craft the many launch titles shipping with the new console this week.

The Xbox One started with problems—seven months before it even shipped! Microsoft initially said the device would have to connect to the Internet at least once every 24 hours to play games, including disc-based games, as a new form of digital rights management (DRM). Redmond smartly rethought that requirement following a huge gamer outcry. Users will still need to go online at least once to set up the hardware however. And it remains to be seen if, along with the PS4, a lack of backward compatibility with prior generation games will hurt console sales. The 360, to its credit, played at least half of the games from the original Xbox, but expect many old 360 games to show up for download, eventually. You'll just have to pay for them. Again.

Xbox One

As noted, Kinect is mandatory in Xbox One, now updated to use a 1080p wide-angle camera. It tracks up to six people at once, so you'll need a very big living room for that kind of gaming. The microphone is always on, so voice commands can be used to turn on the Xbox One even when it's asleep. It can also be used for Skype video calls now that Skype ships as part of the Xbox operating system.

Maybe the biggest difference is that the Xbox One will sport a Blu-ray optical drive inside—something sorely lacking in the 360 after Microsoft backed the wrong horse with the doomed HD-DVD format. Now with Blu-ray in the Xbox One, Microsoft is in the uncomfortable position of paying Sony (OK, the Blu-ray Disc Association) a licensing fee to use the tech. Then again, who cares about Blu-ray when Xbox One offers streaming from just about every available service?

And don't forget the games. The Xbox One will have a host of game exclusives shipping with it, including Dead Rising 3, Ryse: Son of Rome, and Forza Motorsports 5. Coming later: Quantum Break, the amazing looking Titanfall, and eventually...Halo 5.

If you're still unsure whether to get a new Xbox One or PlayStation 4, read our guide, "Xbox One vs. PlayStation 4: Upcoming Consoles Compared."

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Further Reading