The Xbox 360’s Red Ring of Death issue cost Microsoft $1.15 billion

The Xbox 360 enjoyed a long and successful life cycle since its launch back in 2005. However, many of you will remember that things almost went south for Microsoft back then thanks to overheating issues, which resulted in the commonly known ‘red ring of death' scenario.

Obviously Microsoft had a big problem on its hands but now many years later, we have a bit more insight in to what happened at Microsoft to rectify the problem. In total, the Red Ring of Death, which as many as 23.7 per cent of consoles were suffering from,  took $1.15 billion to fix.

During an IGN podcast this week, former Xbox and current EA executive, Peter Moore, went back over what happened internally at Microsoft when the Red Ring of Death situation came up. At the time, Microsoft didn't know what was happening: “We were seeing failure rates and starting to get reports through customer service. This was a thing where we couldn't actually figure out what was going on.”

It didn't take long for Moore to suss out that Microsoft had a big problem on its hands: “We knew we had a problem. I remember going to Robbie Bach, my boss, and saying, 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 defectors in, it was a challenging problem for our engineers, and we couldn't quite figure out what it was. We knew it was heat related. There were all kinds of fixes. I remember people putting wet towels around the box.”

The Xbox team did the math and eventually figured out that it would cost $1.15 billion to replace/fix all of the broken Xbox 360s, this included shipping, which was handled by Fed Ex and accounted for $240 million of the overall cost. The math wasn't the hard part though, the business review meeting with then CEO, Steve Balmer, was.

“I am trembling sat in front of Steve, who I love to death, but he can be an intimidating human being. Steve said, ‘okay, talk me through this.' I said, ‘if we don't do this, this brand is dead. Steve looked at me and said, ‘what have we got to do?' I said, ‘we've got to take them all back, and we've got to do this in a first class way,' because when you take a console away from a gamer, and you're going to spend three weeks fixing it… so we've got to FedEx this all the way. We've got to FedEx this all the way. We've got to overnight it back in two.”

Fortunately, even upon hearing the $1.15 billion figure, Balmer didn't hesitate to give the go-ahead to extend the Xbox 360 warranty and begin taking in broken models and fixing them up: “He said, ‘what's it going to cost?' I remember taking a deep breath, looking at Robbie, and saying, ‘we think it's $1.15bn, Steve.' He said, ‘do it.' There was no hesitation. I'm thinking, I'm about to crater Microsoft's stock. Actually, nothing moved.”

It is worth pointing out that Sony had similar issues with early PS3 models, which suffered from a yellow light when the console overheated.

You can listen to the full podcast for yourself, HERE. 

Discuss on our Facebook page, HERE.

KitGuru Says: So there you have it, Microsoft's engineering error with the early versions of the Xbox 360 really cost it a lot but overall it was the right move to keep the brand alive. The last generation of consoles could have been a lot less interesting if Microsoft had let the Red Ring of Death issues run rampant. Did any of you guys ever run in to the RROD issue? My first Xbox 360 ran fine for a few years but was eventually inflicted with it. 

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