Episode 4 Bungie



In this episode of Acquired, hosts Ben Gilbert and David Rosenthal, along with special guest Ed Fries, former Microsoft executive, delve into the acquisition of Bungie by Microsoft. Fries played a crucial role in the acquisition, which brought the iconic video game franchise Halo to the Xbox platform. The conversation covers the early days of Bungie as a Mac game developer, the financial struggles leading to the acquisition, and the subsequent success of Halo, which became synonymous with Xbox and revolutionized multiplayer gaming. The discussion also touches on the importance of maintaining a company's unique culture post-acquisition and the eventual spin-off of Bungie from Microsoft. The episode highlights the strategic significance of the acquisition in establishing Xbox as a major player in the console market and the broader implications for the gaming industry during platform shifts.

Summary Notes

Introduction to Episode

  • Ben Gilbert and David Rosenthal introduce the podcast episode.
  • They acknowledge the audio quality due to Skype recording.
  • The episode will discuss the acquisition of Bungie by Microsoft.
  • Ed Fries is introduced as the special guest, who led the acquisition at Microsoft.

"Hey guys, it's Ben. The audio in today's show is a little degraded since we recorded from Skype, but we're super pumped about the show nonetheless."

"And we're here today to talk about the Bungie acquisition by Microsoft."

The quotes explain the context of the episode and the main topic of discussion, which is the acquisition of Bungie by Microsoft. The speakers are setting the stage for the conversation with Ed Fries, who played a significant role in the acquisition.

Background of Bungie

  • Bungie was founded by Alex Seropian and Jason Jones from the University of Chicago.
  • Created games primarily for Mac in the 90s.
  • Had success with the game "Marathon" and its sequels.
  • Unveiled "Halo" in 1999 at a Macworld keynote by Steve Jobs.

"So most people are probably familiar with Bungie, the creators of the video game franchise Halo. The company was founded in the early 90s by two undergrads at the University of Chicago, Alex Seropian and Jason Jones."

This quote provides a brief history of Bungie, highlighting their early success and the unveiling of their most notable project, Halo. The information is relevant for understanding Bungie's position before the Microsoft acquisition.

The Acquisition of Bungie by Microsoft

  • Ed Fries was a fan of Bungie's games before leading Microsoft's game business.
  • Microsoft approved the Xbox project in February 2000, and Fries needed a game portfolio for the 2001 launch.
  • Bungie's financial trouble led to acquisition discussions with Microsoft.
  • The deal involved splitting Bungie's assets between Microsoft and Take-Two Interactive.

"We got final approval to make the Xbox at a meeting we called a Valentine's Day massacre that happened in February 2000."

"And so starting then, my life was really crazy because I knew that I needed a portfolio of games ready for launch in November 2001, which was less than two years away."

These quotes explain the urgency for Microsoft to secure game titles for the Xbox launch and set the stage for why the Bungie acquisition was strategically important. Fries' personal interest in Bungie's games also played a role in the acquisition process.

The Deal Structure

  • Microsoft and Take-Two Interactive had to agree on the division of Bungie's assets.
  • Take-Two received the back catalog and Oni game; Microsoft got the Halo IP and developers.
  • The acquisition was seen as a strategic win for Microsoft.

"So I had to call up the head of Take two, which is a guy named Ryan Brandt. And we kind of had to work out between the two of us how to split the company into two pieces."

This quote details the negotiation process between Microsoft and Take-Two Interactive, emphasizing the complexity of the deal and how the companies reached an agreement on dividing Bungie's assets.

Post-Acquisition Challenges and Opportunities

  • Steve Jobs was unhappy with the acquisition, prompting a call from Ed Fries to appease him.
  • Fries proposed a Mac version of Halo and other Microsoft games to Jobs.
  • Peter Tampte, ex-Bungie, was suggested to lead the Mac porting company.

"Steve Jobs was not happy. So, I don't know, a few weeks later, once the deal was announced, I got mail from Steve Ballmer or got a call from Balmer or something, and it just said, steve Jobs is mad about that you acquired Bungie. Call him and try to calm him down or something like that."

This quote captures the fallout from the acquisition, specifically how it upset Steve Jobs and led to Ed Fries having to negotiate further to smooth over relations with Apple. It highlights the broader impact of the acquisition on industry relationships.

Initial Contact with Steve Jobs

  • Steve Jobs was friendly and quickly delegated the deal to a team member.
  • Apple agreed to fund Peter Tampte's new company.
  • Ben Gilbert and Alex Saropian were required to appear on stage with Steve Jobs at Macworld to announce the partnership.
  • They felt positive about the opportunity to port their games to Mac.

"And Steve Jobs was really friendly on the phone. He said, that sounds great. Here, let me give you a guy on my team."

This quote indicates the ease and swiftness with which Steve Jobs facilitated the beginning of a business relationship, setting a positive tone for the partnership.

Preparation for Macworld

  • Initial plans for rehearsal were disrupted.
  • Steve Jobs's handlers informed them of changes due to Jobs being upset with the rehearsal.
  • Ben Gilbert and Alex Saropian were told to arrive in the morning without a rehearsal.
  • Steve Jobs briefed them just before going on stage.

"We really don't want you guys to come in, go check into your hotel, and we'll call you after dinner."

This quote reflects the unexpected changes in the planned rehearsal schedule for Macworld, leading to no rehearsal for Ben Gilbert and Alex Saropian.

The Macworld Experience

  • Ben Gilbert and Alex Saropian had to improvise their presentation at Macworld.
  • Despite the lack of rehearsal, Steve Jobs was friendly and gave them instructions on stage.
  • They were impressed by Steve Jobs's ability to captivate the audience.

"Okay, we get no rehearsal. We're going to go stand in front of 10,000 people and we're going to say something for a minute or so."

The quote captures the nerve-wracking situation of having to speak at a major event without preparation, highlighting the unpredictability of such engagements.

Halo's Success

  • Halo had a significant attach rate to Xbox sales.
  • Halo became a cultural phenomenon, with high anticipation for Halo 2.
  • Halo 2 broke sales records on the first day, underscoring the game's massive success.

"Halo goes on to the first. Halo has, I believe, a 50% attach rate to all xboxes sold within the first year of launch."

This quote summarizes the remarkable commercial success of Halo, which became a key selling point for the Xbox console.

Uncertainty and Hope

  • Ed Fries hoped for Halo's success but acknowledged the internal struggles.
  • The Bungie team was talented but had different cultural expectations compared to Microsoft.
  • Microsoft had to adapt to Bungie's preferences, such as open workspaces and testing practices.

"I hoped it would be. I have to tell you that I wish the ride on the inside was as smooth as the one you paint on the outside."

Ed Fries expresses the contrast between the external perception of Halo's success and the internal challenges faced during its development.

Bungie's Cultural Clash with Microsoft

  • Bungie's team disliked the private office setup at Microsoft, preferring an open workspace.
  • There was resistance to having a dedicated test team, a standard practice at Microsoft.
  • A compromise was reached, and the test team, led by Harold Ryan, eventually became integral to Bungie.

"We want all these walls torn out, and we just want a big open bay."

This quote illustrates Bungie's preference for a collaborative workspace, which was at odds with Microsoft's traditional office layout.

Marketing and Launch Strategy

  • Marketing decisions had to be made months in advance due to print media lead times.
  • There was skepticism from the gaming press about Microsoft and Halo.
  • The choice of flagship games for marketing was critical, with Halo and Oddworld receiving significant attention.

"Once things start to sell and reviewers get their hands on it, it becomes clear really quickly."

Ed Fries discusses how the market response and reviews quickly clarified which games were successful post-launch.

The Impact of Multiplayer in Halo's Success

  • Multiplayer, especially networked multiplayer, was a defining feature of Halo's success.
  • The ability to connect multiple Xbox consoles for multiplayer games was a novel and popular feature.

"But what made Halo was multiplayer and networked multiplayer."

David Rosenthal emphasizes the significance of Halo's multiplayer capabilities in its overall success and popularity among gamers.

Early Xbox and PC Connections

  • In the early days, Xbox did not have an online service, leading players to create handmade solutions.
  • Players would connect their Xbox to a PC to facilitate PC connections for multiplayer gaming.

"So people came up with all kinds of. I remember you could hook your Xbox to a pc and then people would do the."

The quote explains the creative solutions players used to play together before Xbox Live was available, highlighting the community's desire for multiplayer experiences.

Influence of Handmade Solutions on Xbox Live and Halo 2

  • The ingenuity of players influenced the development of Xbox Live and Halo 2.
  • Halo 2 was seen as the first fully realized online multiplayer experience on the Xbox platform.

"How much did you guys either, a, will both a, think about that beforehand in terms of this incredible experience of playing with your friends, but then b, how much did that shape the eventual launch of Xbox Live and Halo two being to my mind, that first real aa style, fully realized experience of what playing with other people and your friends anytime you wanted could."

This quote reflects on the consideration of player experiences in shaping Xbox Live and Halo 2, suggesting that player desires were a significant factor in their development.

Accomplishments of the Halo Team

  • The Halo team achieved a lot in under two years, including single player, multiplayer, split screen, and network multiplayer modes.
  • The team also worked closely with the Xbox Live team to develop the online service.

"It's amazing how much that team accomplished in less than two years. I mean, that is not very much time in a game business."

The quote emphasizes the remarkable achievements of the Halo team in a short period, highlighting the breadth of features in the first Halo game.

Challenges and Development of Halo 2

  • Halo 2's development faced challenges, including technical issues and leadership changes.
  • Creative genius Jason Jones left the Halo team but later returned to fix issues with the game.
  • Halo 2's release was delayed by a year to address these problems.

"For me, it was like this nightmare, like Halo two, it's all screwed up. And then Jason comes back and he's like, I can fix this."

This quote conveys the personal stress and challenges faced during the development of Halo 2, illustrating the complexities behind creating a successful game.

Parallels with Pixar's Creative Process

  • There are similarities between the development of Halo and Pixar's creative process, particularly the importance of internal honesty and fixing issues.
  • The story of Toy Story's development is cited as a parallel example.

"There's this incredible parallel here to the story of Toy Story as it was being developed, where that went totally off the rails."

The quote draws a comparison between the development struggles of Halo and Toy Story, suggesting that such challenges are common in creative industries.

Bungie's Spin-Off from Microsoft

  • After Halo 2, Bungie felt a separate company structure would be better and negotiated independence from Microsoft.
  • Microsoft allowed Bungie to become independent after agreeing to deliver a certain number of titles.

"After Halo two shipped, the bungee guys felt like that deal was not followed the way they thought it should be. And they decided they would be better off separate, as a separate company again than part of Microsoft."

The quote explains the reasons behind Bungie's decision to spin off from Microsoft, highlighting disagreements over royalties and the desire for independence.

Importance of Culture in Game Development

  • Game developers value the opportunity to create games with sufficient resources and market reach.
  • Integrating a creative team into a larger company requires protecting its unique culture.

"I think the more you can do to preserve the culture of the company, the better, because I think that's really what makes them unique."

This quote underscores the importance of maintaining the distinct culture of a creative team, as it is integral to its success and the quality of its products.

Cultural Differences and Integration Challenges

  • Different game development teams have distinct cultures, which are crucial to their success.
  • The challenge lies in integrating these teams within larger organizations without losing their unique cultures.

"Having a strong culture that attracts specific people that fit within that culture, and really enforcing it and really making it that culture ends up just expressing itself in the product."

The quote highlights the significance of a strong, distinct culture within game development teams and its impact on the final product.

Marketing and Team Integration

  • Integration of marketing within game teams is crucial for cohesive product development and promotion.
  • The separation of marketing from development teams can lead to misunderstandings and a disconnect in promoting the game's vision.

"They really got separated from the teams. And all of a sudden it was sort of an us and them kind of thing."

This quote discusses the negative impact of separating marketing teams from development teams, emphasizing the need for collaboration to ensure a unified approach to game promotion.

Organizational Structure: Divisional vs. Functional

  • Organizational structure impacts the integration and understanding of a product's vision.
  • Divisional structure integrates various functions within separate divisions, promoting close collaboration.
  • Functional structure groups people by function across all divisions, which can dilute the integration.
  • Microsoft experienced multiple reorganizations, oscillating between divisional and functional structures.
  • Creative endeavors may benefit more from a divisional structure due to the need for tight integration.

"But that's the kind of stuff that happened when there isn't this integrated team working together all the way through so that they really understand the vision for the product."

The quote highlights the importance of an integrated team in understanding and executing a product's vision, suggesting that a lack of integration can lead to issues.

"So with functions being, you have all the marketing people together for all the business groups and all the tech people together for all the business groups, versus having these sort of family units of these separate divisions where everyone's totally integrated."

This quote explains the difference between functional and divisional structures, emphasizing the complete integration within divisions versus the grouped functions across all business groups.

Acquisition Categories

  • Ben and David, the hosts, have identified five categories for acquisitions: people, technology, product, business line, and other.
  • They discuss the Microsoft acquisition of Bungie, debating whether it was primarily a product or people acquisition.
  • Ben categorizes it as a product acquisition due to Halo's significance as a product for Xbox.
  • Ed sides with people, emphasizing the importance of the creators behind Halo and Destiny.

"For me it's interesting, I really pegged Halo and Bungie as a product acquisition for Microsoft."

Ben considers Halo and Bungie's acquisition as product-focused, given Halo's continued association with Xbox despite Bungie's departure.

"I'm sticking with the people for now, it's one thing to create a franchise and it's another to continue."

Ed argues for the significance of the people behind the creation of Halo, suggesting their creative contribution is vital.

Technology Acquisitions and Platform Shifts

  • Technology acquisitions can signify broader themes in the industry, such as platform shifts.
  • The Bungie acquisition is seen as a representation of the power of platform shifts within the gaming industry.
  • David views the Bungie acquisition as emblematic of new winners arising from platform shifts.
  • Ed offers a perspective on market evolution, noting the importance of scale and the cycle of acquisitions as markets mature.

"The Bungie acquisition represents the power of whenever there's a platform shift in technology."

David interprets the acquisition as an example of how platform shifts can create new opportunities and industry leaders.

"Maybe it's not just one platform shift. Maybe it's just a natural evolution of each market."

Ed suggests that the acquisition reflects a natural market evolution where acquisitions become more frequent as scale becomes increasingly important.

The Impact of Halo on Xbox Success

  • Ed believes that Halo was crucial to the success of Xbox and doubts the existence of Xbox 360 without it.
  • Microsoft's commitment to Xbox evolved over time, integrating it with other platforms and expanding beyond gaming.
  • Ed was motivated by the challenge of making games an important part of Microsoft, despite initial skepticism.

"I really don't. I think Halo is hugely important to the success of Xbox."

Ed expresses his opinion that Halo's success was fundamental to the overall success of the Xbox platform.

"And then where we see where it's gone today and kind of being part of the same platform as windows and doing so much more than gaming."

Ben acknowledges the growth and integration of Xbox within Microsoft's broader ecosystem, highlighting its significance beyond gaming.

Acquisition Grades and Unrealized Potential

  • The hosts assign grades to acquisitions based on their perceived success and impact.
  • David gives the Bungie acquisition an 'A' but notes potential unrealized due to the spinoff of Bungie.
  • Ed rates the Bungie acquisition as the best he was involved with at Microsoft and gives it an 'A'.
  • The grading system serves as a framework for evaluating acquisitions beyond financial metrics.

"I think I removed the plus because of that. So it's an 'A' for me."

David gives a high grade but withholds the highest mark due to the belief that there was unrealized potential in the acquisition.

"I'll go with an 'A' because this was the number one one that I was involved."

Ed self-grades the acquisition highly based on his involvement and its success.

Conclusion and Reflection

  • The hosts reflect on the importance of the Bungie acquisition and its role in the gaming industry.
  • They discuss the potential impact of Bungie's spinoff on Microsoft's position in mobile gaming.
  • The conversation concludes with an appreciation of Ed's insights and an invitation for future disagreements on the show.

"So many great moments. Thanks again."

The hosts thank Ed for his participation and valuable contributions to the discussion.

"Take it easy, guys."

The conversation ends on a friendly note, with an appreciation for the discussion and a farewell.

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