After a thorough investigation into reports that its Galaxy Note 7 explodes when charging, Samsung has decided to recall absolutely all of its smartphones that are part of this new series, and to replace them with new units that will hopefully not be defective.

It turns out that it was all caused by faulty batteries, which, when overheating, presented a high risk of explosion even when the original Samsung cable and charger were being used.

And since this is the biggest recall of smartphones ever, it’ll cost Samsung approximately $1 billion, with analysts indicating that the company’s value has already dropped by $7 billion following its recall announcement.

But without a doubt, Samsung has what it takes to get over this, and if it has any doubts about it, the company can look at Microsoft, as the software giant went through a similar case with the original Xbox.

Few people remember, but the Xbox 360 suffered from what was later called the “Red Ring of Death,” an issue that renders the consoles completely unusable due to excessive heat. Microsoft, however, handled the whole case very well thanks to Steve Ballmer, who was the company’s CEO at that point and who agreed with the estimated cost of $1 billion to replace defective units.

The Red Ring of Death

It all started in the first year after the launch of the Xbox 360, when customers began to bring back the consoles, complaining that they stopped working all of a sudden with absolutely no error or message that would have helped them diagnose the issue.

Robbie Bach, who was the head of the Xbox unit at that time, recalls that the problem was widespread and essentially came down to “three of the four ringed lights on the Xbox faceplate lighting up red, and the machine just stopping dead in its tracks.”

The infamous Red Ring of Death on the Xbox 360

Neither customers nor Microsoft knew exactly what was going on with the Xbox 360, and Bach explains that it took a while even for the company to figure out what was wrong.

“It's a three red lights thing, which, unfortunately for us, doesn't tell us anything. It doesn't tell you squat about why, but the hardware is saying to us, ‘I'm finished, and I'm not going to start again.’ It could've been almost anything,” he explained.

“At the beginning, we didn't know if we have a trend or we've got two different errors. So you start going through manufacturing batches. You start looking at production numbers: were these two units produced at the same time, on the same line, at the same factory, with the same components? You do all that math: no trend. Then you start to look at the engineering, and then the numbers start to grow. And by six months in, we're struggling to root cause what the problem is.”

“We didn't even know what it was.”

What was happening actually was that Microsoft created the Xbox without paying too much attention to the design, and this is one of the reasons the 360 was so ugly. The teams involved in the Xbox projects weren’t working together on the console - a thing that the new CEO Satya Nadella is trying to fix by bringing groups closer together for “One Microsoft” - so the company designed the device and then sent it to the engineering team to find a way to put the hardware inside.

The result of this lack of collaboration led to a gaming console boasting an enclosure that wasn’t by any means optimized for dissipating the heat, and this is how it all ended up to be a huge fiasco for Microsoft.

The $1 billion recall

Nine months after the launch of the Xbox 360 in November 2005, it became more obvious for the heads of Microsoft’s Xbox effort that they had a problem. The number of complaints coming from customers bringing back the console was growing, and they were all related to the infamous Red Ring of Death caused by overheating.

Peter Moore, former head at Xbox between 2003 and 2007, explained that Steve Ballmer, CEO of the company at that time, was the one who took responsibility and decided to do whatever was necessary to perform the recall despite the huge cost.

“It wasn’t sudden. It was building over weeks. We were seeing failure rates and starting to get reports through customer service. We knew we had a problem. I remember I went to Robbie Bach, my boss, and said, ‘I think we could have a billion dollar problem here.’ As we started to do the analysis of what was going on, we were getting the defectives in, it was a challenging problem for our engineers. We couldn’t quite figure out what it was. We knew it was heat-related,” Moore said in a 2015 podcast.

After people tried all kinds of workarounds to cool the faulty Xbox 360, including putting wet towels on the console, the chiefs of the Xbox unit knew they had to talk to Steve. It was Steve Ballmer, the CEO of the company and one of the most intimidating people within the software giant.

“We got to tell Steve.”

“The moment I’ll never forget in this meeting is when I said ‘Robbie, we’ve got a business review meeting in Building 34. With Steve. Ballmer. We got to tell Steve,’” Moore continued.

With a meeting with Steve Ballmer already planned, Moore and Bach were discussing several ways to handle the recall, and one possible method was to send an empty box with FedEx to customers and have their consoles sent back to the company for investigation before getting them again fully fixed.

The estimated costs of the recall reached $1 billion, and this was certainly the part where they thought that the meeting with Steve Ballmer could go wild. And yet, Ballmer handled the whole case extremely well and decided to do the recall without even blinking. Despite the costs, that is. Moore explains how the meeting with Steve Ballmer went:

“Steve said ‘OK, talk me through this.’ I said ‘If we don’t do this, this brand is dead. This is a Tylenol moment.’ Steve look at me and said, ‘What are we going to do?’ I said, “we got to take them all back, and we have to do this in a first-class way.’ He said, ‘what it’s going to cost?’ And I remember taking a deep breath looking at Robbie and saying, ‘we think it’s $1.15 billion.’ He said, ‘Do it.’ There was no hesitation.”

The recall started, and Microsoft handled the whole process in the first-class way that Moore wanted, but it wasn’t until 2010 that Microsoft introduced the new Xbox 360 model that was restyled to no longer overheat. That was the moment when the Red Ring of Death was completely gone, Bach explains, so it took nearly 4 years to get rid of this problem.

The 2010 Xbox 360 was the one fixing Red Ring of Death completely

Certainly, Samsung has many things to worry about, especially because not everyone might be planning on exchanging their Note 7 models, so it could take longer than estimated to get rid of exploding devices.

In the meantime, as a general precaution, Samsung recommends buyers to stop using the Note 7 as soon as possible and to put it in the box until they get it exchanged and receive a new unit. This is a critical issue, and the company doesn’t want to take any risks, so you’d better do what they say because it might be just a matter of time until the next Note 7 explodes because the owner thought everything was fine.