Red Ring of Death

Prepare to feel old, gamers! The Xbox 360's infamous "Red Ring of Death" saga turns 10 years old this year with the Xbox 360 having been released in 2005. Those three flashing lights on the front of your console meant something was wrong with the wiring inside, and many gamers were left helpless in its wake, unable to play their games. Trust me, I know. I went through four Xbox 360s over the course of three years, including one after I moved to Japan.

That one was fun trying to replace.

Microsoft began seeing record claims of defective units, and eventually it was left with no choice but to tackle it head on when the problem peaked in 2007. The high profile malfunction of the Xbox 360 eventually cost Microsoft a whopping $1.15 billion to fix, and former executive Peter Moore, now at EA, recently sat down with IGN to recount what happened behind the scenes.

"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.

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."

I never tried the wet towel fix, thinking it was bogus. My first Xbox 360 didn't break down until after Microsoft's unprecedented warranty expansion. Moore and his financial team worked out the $1.15 billion in repairs, with $240 million of that going to FedEx alone, and he had to take up the issue with CEO Steve Balmer.

"The moment I'll never forget, I said to Robbie, we've got a business review meeting in Building 34, with Steve Ballmer. I said, we've got to tell Steve, here's what we have to do: we need to FedEx an empty box to a customer who had a problem – they would call us up – with a FedEx return label to send your box, and then we would FedEx it back to them and fix it. Either keep your hard-drive or send it to us.

I calculated with my finance team, Dennis Durkin (now the Chief Financial Officer of Activision), Doug Ralphs (then Senior Director of Finance at Microsoft's Interactive Entertainment Division)… $1.15bn, right out there. I always remember $240m of that was FedEx. Their stock must have gone through the roof for the next two weeks.

And, 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. This is a Tylenol moment.'"

A reference to a series of drug murders in 1982 after which customers died from taking cyanide laced Tylenol pills. Johnson & Johnson had to take drastic measures to assure the public that Tylenol was safe and to save the brand from becoming worthless.

"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.

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."

"I'll never forget that moment," he said. "If you're an Xbox gamer, you can thank Steve Ballmer for not even hesitating. Now, we were a wealthy company who could afford to do that, but not even hesitating because the brand was more important.

"If we hadn't made that decision there and then, and tried to fudge over this problem, then the Xbox brand and Xbox One wouldn't exist today."

Dramatic stuff. Luckily, we seem to have learned with the most recent generation of consoles only hitting a hiccup of problems after launch. No such high-profile malfunctions have damaged the PlayStation 4, Wii U, or Xbox One. Thank goodness too, because $1.15 billion is no easy lump of cash to dish out.