Bungie: Creative ‘sharks’ can’t survive at Microsoft

Halo 3

Bungie has finally left Microsoft:

Founded in 1991, Bungie was at first a Mac-only game developer. It was snatched up by Microsoft in 2000. Its current release Halo 3 has become the fastest-selling video game ever, grossing over $300 million in its first week.

So why the divorce from Microsoft now?

“Working with Microsoft was great for us, it allowed us to grow as a team and make the ambitious, blockbuster games we all wanted to work on. And they will continue to be a great partner. But Bungie is like a shark. We have to keep moving to survive. We have to continually test ourselves, or we might as well be dolphins. Or manatees,” said Jason Jones, Bungie founder and partner.

This is not a new theme at the world’s largest software company. In 1994 Microsoft bought SOFTIMAGE, one of the most respected 3D/animation software outfits in the world. Only four years later it sold SOFTIMAGE to Avid Technologies for $285 million.

Softimage

This is how Craig Mundie, then the senior VP of Microsoft’s consumer platform division characterized the sale:

“This deal is a win-win for all involved…Avid gains the benefit of rapid expansion into the 3D market, a video production solution which ideally complements its current offerings, and a stronger alliance with Microsoft. Microsoft gains a strategic ally for continued development on Windows NT and our digital media initiatives.” [Ed. emphasis added]

For Microsoft everything is and has always been about ‘alliance’ and ‘Windows’. The company has a very difficult time absorbing, integrating and maintaining creative teams. In fact, units within Microsoft chartered to have a creative bend are kept as far away from the core Windows blackhole as possible.

Its financially weak but high-visibility game device unit XBox is run practically as a separate company under J Allard. When Microsoft entered the digital music market with its own device, Zune was also placed in the XBox division.

Leaving aside the financial ramifications of the Bungie deal, this is yet another indication of Microsoft’s inability to manage the content side of its creative and entertainment related operations. Its aspirations a decade earlier to become a content/creative player through MSN and various other initiatives also went nowhere.

Now that we know creative sharks can’t survive in Windows-tainted Microsoft waters, will the company give up trying to lure them in?

20 thoughts on “Bungie: Creative ‘sharks’ can’t survive at Microsoft

  1. I am not aware of any teams, period: Apple simply doesn’t let them steal the brand’s light anymore, so we don’t get to know what’s going on that much. Have you noticed how disemphasized Jon Ive has become PR-wise since the iMac G4 days, no matter the prices he wins? Avie Tevanian left Apple some time ago: is your chief OS architect leaving a sign of inability?

    I don’t deny getting borged is a real fear among small companies, but I still think you are being too alarmist about the Bungie issue (even more so regarding Softimage, which looked like a very utilitarian adquisition). For a start, we don’t know the terms of the original adquisition: this separation could be something contemplated from the very start, subjected to timed revisions and such (given Bungie’s nature, it seems logical to me that both parties would have accorded this eventuality by then: it was very clear what Bungie’s mission was).

    Once more, I’d remit you to any current creative individual or team working at Microsoft currently being under the spotlight because of their projects becoming fruitful. When interviewed, they seem to be quite happy where they are.

  2. Snafu, there’s a cost to MS’s inability to acquire and retain creative teams. If you noticed, when MS acquired the ad company aQuantive recently, CEO Brian McAndrews was so suspicious that he demanded sole responsibility over direction and even technology. There have been tales of creative companies not wanting to be acquired by MS for fear of getting ‘borged’. There is also the obvious issue of MS perhaps not getting the most out of creative teams while they are there, which might be why they leave after a few years.

    I am not aware of any teams leaving Apple, BTW, are you?

  3. But then, given the reasoning behind their adquisitions, of course it wasn’t a true natural fit. That is a proviso, and it doesn’t reflect on Microsoft’s abilities at all: these were, in a way, exceptions to the rule. Did Microsoft need to retain them once their missions were fulfilled, at all? If not so, what would be the point in keeping them, specially if it benefits of letting them free so that they produce more value to the platform from the outside from then on?

    And, anyway, are creative teams meant to stay forever in a given organization? Even Apple has some of their people leaving to try new things out there from time to time. Having a flux of people, teams, even adquired companies come, stay for a while and be fruitful, and go, seems fine to me. Microsoft is experimenting with several interesting technologies thanks to the existing creative teams inside the organization: that table computing thing, HD Photo, etc.

    Not that one isn’t aware of the internal criticism that arised from the Vista teams about team and project management and such, but it is curious to see how enthusiast about being there the people behind Microsoft’s most creative developments of late are.

  4. Snafu: “I don’t know why you consider the Softimage operation a failure.”

    The article is really about the ability of Microsoft to retain creative teams within the organization, not about the success/failure of their respective products. Both Bungie and Softimage felt it necessary to leave MS and they did.

  5. I don’t know why you consider the Softimage operation a failure. It was succesful at doing what I think it was meant to do: validate NT as a viable 3D animation workstation OS.

    As for Bungie, it is the same thing: the Halo trilogy worked as the XBox flagship game. Now that the core of the franchise is finished and any related thingies can be delegated to other game companies’ programming teams, letting Bungie free is a valid decision: Microsoft won’t get tainted if Bungie’s next big game happens to be less than stellar, it will keep on getting Bungie games for their console, and will be a prefered partner for marketing and distribution.

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  7. “Sammy, as I said in my reply to James above, there’s a limit to how many beach-heads you can ‘profitably’ hold. ”

    Exactly.

    Game consoles: money loser. Windows Mobile: money loser. Zune, DRM etc: money loser.

    Office: profit center, but has to compete with equal products that are free (OK, it has managed this SO FAR). Windows: profit center, but the margins are going south. Every time China or Brazil threatens to upgrade from Windows to LINUX, MSFT has to do VERY deep discounts. If American companies ever latched on the third world game plan…..

  8. Sammy, as I said in my reply to James above, there’s a limit to how many beach-heads you can ‘profitably’ hold. MS feels the need to defend so many areas they went into when they were better positioned to do so that today the fiscal and attention-span cost of holding many non-profitable entrees is pushing down MSFT.

  9. James, you’re absolutely right, Microsoft’s moves were largely defensive. But the question right now is, is this defensive posture worth the money?

    MS has similar attempts in search, advertising, online apps/services, digital music, etc. They are not paying off. They haven’t been for a number of years now. The Street doesn’t seem to think this is sustainable.

  10. Xbox isn’t about making money its about keeping another company from becoming a Microsoft-like company in the console gaming industry. If Nintendo hadn’t kicked both MS and Sony in the pants with the Wii, MS feared Sony would take over the console gaming world.

    Ironically, MS should have seen Sony’s weakness when they conceded the personal music player market to Apple. Sony has lost its edge and isn’t worth wasting almost a billion dollars a year over.

    – James

  11. The one part most are missing, but some caught onto, is that the Xbox isn’t just about making money by selling Xboxes and Xbox games. The real profit comes many years down the road when MS has gained a foothold on your livingroom entertainment needs and can then push their future products and services to you.

    Military minds do this all the time. You secure an insignificate peice of land, only to use it as a staging area to amass the rest of your forces for a major assult.

    “The game isn’t played in the here and now. It’s played 3 moves ahead” – the game of chess.

  12. “If you remember, Xbox was delberately sold at a loss, and the hope was to make it up in game royalties. This sounds like an awful strategy”

    Well, it IS an awful strategy. But less awful than it sounds. They WILL move lots of Halo over Xmas. And over Xmas 2008– games boxes are on a multi-year life cycle, unlike PC’s.

    I think another motivation on MSFt was the hair-brained notion that this would foster increased use of MSFT technologies, like Direct3D over OpenGL. It hasn’t, that I can see.

    Another factor regarding Bungie: when they were bought, they were the premier MACINTOSH game developer. Back in the days when the Apple was having OS direction dificulties. MSFT kicked Apple when they were down, and the US’s Fair trade commission was too dumb to even notice.

  13. David, from my POV the significance of the Bungie deal lies more with Microsoft than Bungie.

    When MS entered the gamebox business, as is their custom, they didn’t pursue a “change the rules” strategy (as Apple did with the non-subsidized iPhone revenue sharing model). Their business model was the same as that of the market leader Sony: subsidize each box, get revenue from sales of games. So, as you indicate, if the per-box loss numbers are correct, XBox will never be a great financial story.

    However, as the world’s biggest software company, MS has other considerations. At least in their minds. They didn’t want to concede this market to Sony, because games lead to the very large digital home entertainment market, which MS can’t lose to anybody else.

    Same with digital music: MS is obsessed about Apple’s FairPlay not because the iTunes Store is a giant money maker, but the DRM allows Apple to create a well-defended empire that’s off-limits to MS. If Apple’s dominance here also sets a precedence in, say, digital TV or mobile devices, then that’s a major concern to MS’s bottom line.

    MS’s dilemma with Bungie was the fact that clearly the Bungie folks were not satisfied. In the tradition of Pixar, they wanted more control of their own destiny. I think this solution was the best each side could get, at this moment. If Bungie is as successful as Pixar has been, there’s no telling how the arrangement with MS could be reworked. Notice how much Pixar got from Disney to join and still be ‘independent.’

  14. I’m a little confused, if you don’t mind.

    Microsoft has lost over a billion dollars a year on Xbox, correct? And on top of that we have the 1.2 billion on that embarassing recall, which doesn’t even address the scratched CD issue.

    If you remember, Xbox was delberately sold at a loss, and the hope was to make it up in game royalties. This sounds like an awful strategy. If this is the most important game, and it took years to develop, and only gets $300-odd million in sales, then a 10% royalty to MS would give only $30 million. Even if we assume a billion in sales by Christmas, we’re talking about $100 million to offset billions in losses. If this is the biggest game by an overwhelming margin, it seems to me that the original pricing formula was faulty and the Xbox revenue model can never work.

    As an investment, Xbox looks like an unmitigated disaster.

    However, the press release says Microsoft gets a right of first refusal on Bungie’s future products, so I have to assume that they are pretty committed to Microsoft financially. Indeed, I’m not sure what practical impact this quasi-independence will have. I guess the point is no more bureaucratic supervision, which is good. But it seems likely that most of the games will still go to Microsoft and be exclusive to Xbox.

    At least for as long as Xbox exists.

    D

  15. If XBox has already lost between $6-$10 billion as variously estimated, I’m not sure how it will ever be profitable.

  16. Interesting development. As noted elsewhere on this blog, the Xbox is CLEARLY the highest quality product ever launched from MSFT, with it’s hardware/software integration. And they’ve just lost their key developer. The Xbox relies on software sales to recoup LOSSES on the hardware. Halo 3 has been huge, seeing $300 M, at least, so far. But, even with the holidays coming– with it be anywhere NEAR enough to offset the losses? With the losses and overheating and wrong choice of processor problems– will MSFT stay with the Xbox? I think they will, because Ballmer is bliisfully unaware of his limitations, and the BoD seems infinitely patient. I would drop Xbox and sell halo to PS3, myself.

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  18. Interesting story. I like Halo2 for the matter.
    Anymore such stories would be nice… Hehehe…
    But nowadays… games are somehow too boring with the same theme going on and on and on and on… … … Like some shooting 3D… all shooting shooting shooting shooting shooting shooting and shooting shooting shooting…

    Return to CWolf is special. You see Nazi Foe gored by Nazi Monsters…

    Anything funnier? Would be welcomed.

  19. Well put. SOFTIMAGE is just one of many examples. Generally, MS sees very little long term benefit from acquisitions besides scaring competitors and taking a competitor out of their path. Bungie is very lucky, since most of their acquisitions get parted out to other parts of Microsoft and destroyed.

    – James

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