Microsoft launched Xbox Live as an online gaming service in 2002 amid great skepticism. It didn’t really take off until Halo 2 launched in 2004, but now the service is huge.

There are now more than 20 million active Xbox Live subscribers (both free users and those who pay $50 a year for multiplayer gaming). That means that more than two out of three Xbox 360 owners use the service. The company has added popular new video services such as Netflix videos and this week it debuted integration with Twitter, Facebook and Last.fm.

Microsoft also knocked out a bunch of users from the service who were using “modded” Xbox 360s, which have been modified to play pirated games. We sat down this week with Marc Whitten, the general manager of Xbox Live, to catch up on the latest with the service at the Streaming Media West show.

VentureBeat: You’ve got more than 20 million subscribers now. Tell us more about the numbers.

Marc Whitten: We hit two million concurrent users (meaning they were logged in at the same time) last week. That was a big milestone for us. It wasn’t all that long ago that we announced 1 million concurrent users. That’s been great to see. I am excited about the usage of a bunch of the stuff we’ve unveiled, which includes Netflix movies and the Sky Broadcasting service in the United Kingdom. (The Xbox 360 serves as a set-top box for Sky’s Internet TV service.) The usage of these non-game services ranks as high as the game usage. We have high expectations for the usage of Facebook, Twitter and Last.fm too. People are really loving these experiences.

VB: So the Nov. 10 release of Call of Duty: Modern Warfare 2 pushed the service into its record numbers?

MW: Modern Warfare 2 was phenomenal. Those guys at Infinity Ward are amazing. It pushed us into the record.

VB: It seems like a lot of people skipped the single-player game altogether and just started playing multiplayer on Xbox Live?

MW: We had a mix. That had a great single player experience, but the community play for Modern Warfare has always been so great that a lot of people moved right into multiplayer. We have seen that before, though it depends on how well the multiplayer experience is. On day one of a launch, we see a big surge of multiplayer with almost any game. Halo Wars saw a spike in multiplayer on its first day.

VB: So Modern Warfare 2 beat out Halo 3: ODST in multiplayer numbers?

MW: Yes, Modern Warfare 2 broke the records.



VB: When you started thinking about adding Facebook functions into Xbox Live, how did you approach it?

MW: When we launched the New Xbox Experience on Xbox Live a year ago with Netflix, part of the goal was to create a platform that let us change and modify and launch things right away. It wasn’t just about doing better graphics. You recall that for a long time we would update the service just twice a year and figure out how to add a new blade into the user interface. That work made it easy to figure out how we could layer in this new stuff.

We worked on Facebook for less than a year. It was not a difficult project. The fundamental thing you ask when you’re designing something like this is ‘what can be done better?’ To us, that was clearly adding better photo viewing. It’s a better social environment in front of the big screen. You can all be comfortable and look at the pictures from Facebook more easily than crowding around a computer. It has been way too hard to get photos on your TV. Building something that makes that easy was what we wanted to do.

The beauty of Facebook to me is that people will link their Xbox Live accounts to their Facebook accounts. Then the next new people who sign up for Xbox Live will find they already have a lot of friends on it. They can get 30 friends a lot faster.

VB: I suppose people have a lot more friends on Facebook.

MW: We had a 100-friend limit on Xbox Live. Mixing these experiences together will get us to the best of what we want. The rate of adding friends has to do with who you already know on the service and finding experiences together that you like. With Sky, you can do party mode viewing. You can all watch a movie together and comment on it.

VB: There were stories that talked about how Microsoft knocked out a lot of modders from Xbox Live. I recall that early on there were maybe 1 or 2 percent of the people who were using modded machines. Why would there be such a large number now? One report said it was a million modders knocked out.

MW: It’s a cat and mouse game. These were people that were pirating software. We try to keep sanctity of life from a safety and anti-cheating perspective and we protect our partners. We didn’t release the number. I cannot explain to you why people would think it was a million people. It wasn’t a million people. Check the veracity of that claim. It was one news source. I think we do a really good job understanding what people are doing on the system. That applies to intellectual property (piracy) and how we treat the community in terms of harassment. We are committed to making it better and better.

VB: With the social networks, you will bring in a lot of user-generated content. Is that a security risk?

MW: No. Where we have introduced user-generated content, we have been careful to create community tools that help us in the policing and to make sure we can maintain a safe environment. With indie games, anyone can submit a game for our community games section. That runs in a sandbox so that we can test if the game operates correctly in the environment. We also have community ratings so they can rate it and filter out inappropriate content. They serve as the first filter for us.

VB: How are the indie games doing now?

MW: It’s going well. One of the games I’m playing the most now is an indie game called Avatar Drop. You drop your avatars through hoops and watch the ragdoll physics (where the bodies bounce around with realistic physical effects). Indie is great because it brings you interesting services.

VB: Will you be able to do a lot more with the social networks, like playing Facebook games?

MW: Bringing social networks and content together creates a different experience. Social has been different in the past. Can you play a game that is on the social network? In the future, they will move much closer together. With Sky, you can see how they mingle together. We can just start mingling things. Social will remake entertainment. A lot of stuff happens because the tools are created. I take a lot of pictures with my cell phone camera. They get on Facebook and suddenly they can show up on the television now with Xbox Live. If you have a party at your house, you can put up a Facebook page. You can take pictures and see them constantly update on the TV. That’s a cool experience. It will get more interesting as creators use the tools to create new experiences.

VB: A lot of the observation of games this year has been about the rapid growth of free Facebook games, at the same time that console games have been shrinking because of the recession. At some point, it looks like you might embrace that. But it could be bad for your business if people play free games instead of paid console games.



MW: It’s been a great year on Xbox Live. If you recall, we went from a million concurrent users to two million, that’s great growth. It’s been an uptime for us. Live continues to be an incredibly relevant experience in terms of digital downloads and the growth of our Xbox Live Arcade games. Some of those download games are 100 percent higher than a year before.

The other point is that we are going to continue to see social and games come together in interesting ways on a variety of platforms. I am passionate about this — entertainment you want, with the people you are about, wherever you are. A lot will happen in the living room. There is also a lot that will happen on the PC, the web, and mobile platforms. We need to make sure we are building the right experiences. We are very excited about the growth of games for everyone. It just brings more players into the category.