Xbox 360’s Red Ring Of Death Was $1 Billion Sink Hole For Microsoft
That figure is the result of extended warranty coverage and subsequent repairs and replacements. In his book, "Xbox Revisited: A Gameplan for Corporate and Civic Renewal," former Xbox boss Robbie Bach describes a time when a group of team leaders met in his basement to discuss the wave of complaints over defective Xbox 360 consoles. It was a "long, difficult conversation," and at the end they all agreed "to extend our warranty to three years and repair and replace every console affected."
This is not a sight any Xbox 360 gamer ever wanted to see
What they didn't anticipate was that repairing and replacing all affected consoles would add up to $1 Billion from a cost standpoint, but it did. To this day, that's a tough pill to swallow for Bach—in an interview with Tech Insider, Bach called it "the biggest decision I made in my 22 years at Microsoft, no question." His book was released in 2007 and it's still haunting him nearly a decade later.
The Xbox 360 was doomed from the start. Bach says the problem ultimately boiled down to focusing on design first and engineering second. More specifically, Microsoft had a shell in mind, a certain aesthetic it wanted for the Xbox 360, and it was the engineering team's responsibility to fit all the parts inside. This is most definitely a common pitfall for many high tech companies, with respect to industrial design. Form over function is too often the reality.
As anyone who's ever built a PC knows, the smaller the enclosure, the higher the risk of thermal management issues causing a problem. The Xbox 360 can be viewed as a small form factor computer in that sense, and though Microsoft tested the design before selling the finished product to the public, it didn't encounter the RRoD problem that it would later face in the varied environments of basements and living rooms around the world.
Once users started complaining of premature failures, the rush was on to figure out what was going on, but that's no easy process. Bach and his team would analyze defective models to see if they came from the same production batch and to look for other similarities. And it didn't help that the RRoD only indicated a fatal failure, which could have been related to any component inside the Xbox 360.
According to Bach, it wasn't until Microsoft released the Xbox 360 S model in 2010 that the problem was truly fixed, though the lower powered Jasper variant hit the scene in 2008. Regardless, the mark it left on Bach and Microsoft still lingers today.