Robbie Bach Is Ready To Rumble

The honcho of Microsoft's Xbox 360 heads for a bare-knuckles brawl with PlayStation

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It's 5:50 on a November morning, and Robert J. Bach is shooting hoops with some pals in the Pro Sports Club in Bellevue, Wash. Microsoft Corp.'s (MSFT ) top entertainment technology executive has a severe case of bed head, but he's full of intensity in the game of three-on-three, with a group made up mostly of current and former Microsofties. Every few minutes, the gregarious 6-ft.-3-in. Bach, known as Robbie, acts as human scoreboard, rattling off the point tallies. "23-21, us," he belts out. "The man wants to win -- a lot more than most," says longtime friend and former Microsoft colleague Frank M. "Pete" Higgins. "Keeping score isn't extra work for him."

For anyone keeping score at home, Bach is out in front. As the company's chief Xbox officer, he gets a lot of credit for the solid success of Microsoft's game console. In the four years since its launch, Xbox has captured the No. 2 spot -- Sony Corp.'s PlayStation 2 is tops -- and expectations are running high for a second-generation video console, Xbox 360, which will hit North American stores on Nov. 22. Xbox 360 comes in a sleek white console, boasts high-definition gaming, and easily connects to a home computer network.

Most analysts believe the new version, with a $299 price tag for a base model, will help Microsoft narrow the gap with Sony (SNE ). The Japanese company still dominates the market, and PlayStation 3 is expected to have life-like graphics, thanks to its Cell multimedia chip. But Sony won't launch PS 3 until sometime in 2006. That has Bach salivating. Xbox was the latecomer to the market last time. "I've lived this entire experiment from the other side," Bach says. "There's nothing like being on the other side to know what it feels like and what the challenges are."

In recognition of Bach's talent and the importance of consumer electronics to Microsoft's future, CEO Steve Ballmer on Sept. 20 named him one of the company's three new presidents. Bach runs the new Entertainment & Devices Div., which includes Xbox, game software, and technology for devices such as mobile phones. "He is a strong business leader who understands the importance of creating a strong end-to-end experience for consumers and making tough decisions and trade-offs when required," says Ballmer. At 43, Bach is the youngest of the presidents, perhaps putting him in line to succeed 49-year-old Ballmer one day -- although Bach says it's not something he has considered.

He would make an interesting choice. Bach has emerged as a bridge between Microsoft's past success and future ambition. A 17-year veteran of the software giant, he spent four years running marketing for Office, the company's ubiquitous software for word processing, spreadsheets, and presentations. Now with Xbox, he has led Microsoft into a new multibillion-dollar business, the type the company is desperate to find as growth of its mature products slows.

To succeed, Bach broke the Microsoft mold. While almost all of the company's other products are linked to Windows, Microsoft's operating system for PCs and other devices, he built Xbox without using the flagship product, focusing solely on making it a great game console.

These days, he seems poised to use that playbook as he goes after additional markets. One area of interest: digital music. Bach says the company, which already makes software for playing digital tunes, might consider making its own digital music player to rival Apple Computer Inc.'s (AAPL ) iPod. That would be a big change since Microsoft historically has won support from hardware makers by sticking to software. Making a music player would put Microsoft into competition with Dell Inc., Creative Labs, and others that use its audio software. Still, Bach might be motivated to change course since Apple has left all other rivals in the dust.

Bach can be an extremely dangerous rival. He's able to tap Microsoft's billions to go after new opportunities. In the Xbox business, Microsoft has burned through $3.8 billion since it first started working on the project in 2000, estimates analyst Rick Sherlund of Goldman, Sachs & Co. (GS ). Sherlund doesn't expect the home and entertainment group to turn a full-year profit until at least fiscal 2008.

Microsoft has been willing to invest that kind of money because Bach's businesses have the potential to be the engines of future growth. Right now, they amount to just 9% of the company's $40 billion in annual sales. But Sherlund estimates sales in Bach's home and entertainment group, the Xbox business, will jump 56% this fiscal year, and his mobile device division will climb 25% -- compared with just 6% for the Office products. That's one reason the Xbox group is among the most popular spots to work in Redmond. It's a new frontier, and workers get to be the underdogs.

Bach has already made a dent in Sony's game dominance. The first Xbox console captured 18% of the market, compared with 67% for PlayStation 2 and 15% for Nintendo Co.'s (NTDOY ) GameCube, according to researcher DFC Intelligence. It's surprising to many in the industry who wrote Xbox off early, figuring that Microsoft would alienate game makers with the kind of heavy-handed tactics it was known for in the PC business. "Robbie has achieved a massive amount of credibility for a company that a lot of people were suspicious of," says John Taylor, a video game analyst at Arcadia Investment Corp. in Portland, Ore.

Bach developed his strong work ethic as a kid. He spent his early years in Milwaukee and moved to Winston-Salem, N.C., at 13. He grew eight inches the year before, leading to a condition known as kyphosis, a curvature of the spine. Three days before moving, he got a brace with steel rods connecting from a girdle at his waist to a metal ring around his neck. He wore the contraption for five years, initially for 23 hours a day. "It was a huge hassle. Everyone looks at you kind of funny," Bach says. "I grew up quicker than a lot of people."


The brace didn't do much to slow Bach down. "Robbie looked at it and said: 'No big deal,"' recalls brother Tom Bach. A gifted athlete, Bach played tennis six days a week wearing the brace. And he excelled, reaching the quarter-finals in doubles at the national boys tennis championship in 1978. "He was so driven to play tennis wearing that thing," says his then-practice partner, Louise Allen. 'Everything he got, he earned." Bach rarely plays anymore, though, because he's frustrated at being less skilled than he once was.

Bach's drive brought him to Microsoft straight from business school at Stanford. Microsoft's Higgins was the first to interview Bach, meeting with him at Stanford. While Bach was intense, he wasn't abrasive. "You're always working with Robbie," says Higgins. "A lot of people you work for."

Bach's no pushover, though. One crucial discussion for the Xbox team took place on Feb. 14, 2000, when they met with Ballmer and Chairman Bill Gates. Bach wanted the green light to develop the Xbox without using Windows. But Gates resisted, opening fire even before he sat down. "The operating system I've been working on for 25 years is not good enough?" Gates said, according to Xbox technology exec J Allard, also at the meeting. Bach held his ground, arguing that Windows would ruin the gameplaying experience because it wasn't specialized enough for the task. At the end of a three-hour meeting, Bach and his team had persuaded Gates and Ballmer to make one of the biggest financial bets in the company's history, using a completely foreign strategy. The event is known internally as the Valentine's Day Massacre, for how brutally it started. "None of us have ever forgotten that meeting," says Bach.


Once Bach got the support of his bosses, the next big challenge was winning over game makers. Bach planned on setting Xbox apart from PlayStation 2 by making the ability to play games online a core feature. But Xbox Live, Microsoft's online service, couldn't win the support of Electronic Arts Inc. (ERTS ), the world's largest video game publisher. EA feared that Microsoft would horn in on its relationship with customers. Bach was willing to compromise. In the end, Microsoft agreed to share information on EA customers who consented to it. "Robbie was instrumental in our being able to come to an accommodation," says EA Chairman and Chief Executive Lawrence F. Probst III.

Now, Bach is going the extra mile to win over developers for Xbox 360. One of the toughest decisions was launching the console at roughly the same time in all three major markets: North America, Europe, and Japan. It's a juggling act for Microsoft, but it gives developers more incentive to build great games and time them for release along with Xbox, since they know that they'll have a worldwide audience from the get-go.

Bach's approach to managing his own team is a bit unusual, too. He's not hung up on tapping Microsoft veterans. In the Xbox group, he assembled a four-man brain trust -- three of them from video and entertainment. And he gives each one latitude to run the technical, financial, and marketing pieces. "He lets me call the plays. He lets me make mistakes," says Allard.

At the same time, he knows when to rein in his team. Take the upcoming TV ads for Xbox 360. A commercial consumers won't see is a playful shoot-out among people at a train station, where all the people pretend to fire at others using their fingers. In an era when terrorists target train stations, Bach felt he had to quash the ad in spite of its cinematic appeal. "It was award-winning, unfortunately," he says.

For a guy who's constantly keeping score, passing on the ad wasn't easy. But Bach has succeeded by focusing on long-term, not momentary, gains. That approach will come in handy as he tries to bring the Xbox touch to his new job.

By Jay Greene

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