The Staggering Amount Of Money It Cost To Repair Xbox 360's Red Ring
If you never experienced the Xbox 360's Red Ring of Death, consider yourself lucky. That sinking feeling players felt when they saw those flashing red lights on their Xbox console display was truly upsetting in a unique way. The red-ring issue was so prevalent and serious that Microsoft had to take major steps to make sure the entire brand didn't sink under the weight of bricked consoles.
The Red Ring of Death provided a seminal moment in Xbox's history, shaping the future of the console wars. Fortunately, Microsoft is a big company and had the resources to make the problem right. It decided to create an enhanced warranty program that applied to both new and previously sold consoles, lasting three years and completely covering any 360 that experienced the problem. The warranty, according to an open letter from Xbox's Peter Moore, would cover repairs, shipping, and whole-console replacements.
Moore declared in an IGN podcast, as reported by Eurogamer, "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." The policy saved the Xbox but cost the company a lot of moolah. How much, exactly?
Microsoft shelled out $1.15 billion to fix the issue
DesignNews, repeating secondary media reports, said that the Red Ring of Death may have affected 23 to 54 percent of Xbox 360 users, who each shelled out $299-399 for their systems in 2005 and 2006. That adds up. In fact, Microsoft revealed that the cleanup would add a $1.05-1.15 billion charge to its results for the financial quarter that ended in June 2007.
The fix required Microsoft to send empty FedEx boxes to customers so they could ship units to the company, and Microsoft would ship them back. Moore told IGN, "I always remember $240m of that was FedEx. Their stock must have gone through the roof for the next two weeks."
An analyst who followed Microsoft in that era told CTV News that he estimated its entertainment and services division had lost $6 billion from 2002 to 2007, so the console business hasn't necessarily been a moneymaker for Microsoft. However, the Xbox is part of Microsoft's overall gaming strategy that includes software, PCs, and other parts of the business — and it's very possible that this would look very different if the Xbox 360 hadn't survived the Red Ring of Death.