Humans make mistakes. Rarely, however, does a single error rack up $1 billion in damages as it did in the case of the Xbox 360’s red-ring-of-death issue. That, of course, is the dark period early in the console’s history when, according to some tests, over 15 percent of the hardware units were experiencing failure.

Former president of Microsoft’s Entertainment and Device Division, Robbie Bach, called that point in time “the most painful thing in my life.” VentureBeat chronicled the story of the defects in the Xbox 360 in a six-part story in 2008, and Bach looked back on his decade with the Xbox team last fall.

Bach’s mea culpa came in a talk that Bach gave to the Northwest Entrepreneur Network (as covered by GeekWire) about “intrapreneurship” which is when a smaller team creates a startup project within a well-established company infrastructure. The former Microsoft man outlined four strategies he learned from his time leading the gaming division.

Create discontinuity

When Microsoft entered gaming with the original Xbox, it didn’t mimic the PlayStation 2. Instead, it created discontinuity with its product by including a hard drive and broadband-Internet support. “[The on-board storage] was an expensive way to get into the marketplace, but it made our product different,” Bach said. “It enabled downloads, it enabled a whole set of things to happen that couldn’t happen on the PS2.”

The executive also explained that Bill Gates thought that Bach and his team were crazy for wanting to remove the dial-up modem from the Xbox design. “Bill said to us, that’s the craziest thing I’ve ever heard,” Bach recalled. “So we had a three-week email debate, and had to go back and have a meeting and convince Bill that taking the modem out was the right thing. Today, some people in [this audience] probably don’t even know what a modem is.”

Employ unique marketing and branding

According to Bach, the official marketing campaign successfully branded the Xbox as more powerful than the competitors while emphasizing the ability to play games online. The other systems were technically capable of the latter, but only Microsoft’s system and the Xbox Live platform become synonymous with internet play.

Partner with companies who benefit from your success



“When you’re doing a startup, you need friends. It’s just the way life works. It turned out we were able to convince retailers and publishers like Activision, Electronic Arts, and others, that it was a good thing for Microsoft to be successful, because if we were not successful, the only game in town was Sony,” Bach said. As with any business, a lack of options can be dangerous. Microsoft presented the Xbox as an alternative if relationships with Sony began to sour. (Of course, it took years to convince EA that Xbox Live was in EA’s interests).

Capitalize on your competitor’s errors

“Some of the success of Xbox was due to the fact that Sony did some really not so smart things. They mismanaged their 70-percent market share. It’s a long conversation. The transition to PlayStation 3 was really, really bad. And really hard. They mismanaged their partners, they mismanaged their cost structure. They made their next platform so complicated that developers couldn’t develop for it,” Bach pointed out.

While the Xbox line had the benefit of Microsoft’s huge bankroll, the former president was quick to point out that such resources never guarantees success. Look at the Zune.

“Even if you do these things, some startups fail, and that’s just the way the world works. It’s a painful process. That’s true in a big company, and it’s true in a small company.”

Bach left Microsoft in 2010. He currently holds position on the boards for the Boys & Girls Club of America and the U.S. Olympic Committee.

GamesBeat 2012 is VentureBeat’s fourth annual conference on disruption in the video game market. This year we’re calling on speakers from the hottest mobile, social, PC, and console companies to debate new ways to stay on pace with changing consumer tastes and platforms. Join 500+ execs, investors, analysts, entrepreneurs, and press as we explore the gaming industry’s latest trends and newest monetization opportunities. The event takes place July 10-11 in San Francisco, and you can get your early-bird tickets here.