Join gaming leaders, alongside GamesBeat and Facebook Gaming, for their 2nd Annual GamesBeat & Facebook Gaming Summit | GamesBeat: Into the Metaverse 2 this upcoming January 25-27, 2022. Learn more about the event.
Without good games, the original Xbox would have crumbled in defeat before the gaming might of Sony and Nintendo. While Microsoft is a solid contender in game consoles today with a stable of 25 game studios and more than 2,500 game developers, it seemed kind of puny two decades ago.
When the original Xbox launched, the company had barely 400 people spread across 10 studios. And while it had Age of Empires and Microsoft Flight Simulator for the PC, it had virtually nothing in games. The task of building a portfolio of console games fell to Ed Fries, who was head of Microsoft Game Studios from 1995 to 2004.
Fries was the fifth person at Microsoft to sign on to create the original Xbox more than 20 years ago, and he figured prominently in both of my books, Opening the Xbox and The Xbox 360 Uncloaked. We had a chance to catch up on his memories of those days and his role in greenlighting games such as Halo, Forza, Project Gotham Racing, Gears of War, and many more.
Talking to Fries and other Xbox veterans like Seamus Blackley, I appreciated the challenges of having to build the console, support PC gaming, and acquire console gaming talent at a time when Microsoft didn’t have the budgets or experience that the other console makers had. Fries eventually felt the pressure of that impossible task — of beating rivals while holding costs low — and he parted ways with Microsoft. And today, he is now the founder of 1Up Ventures, which is investing in game studios.
The 2nd Annual GamesBeat and Facebook Gaming Summit and GamesBeat: Into the Metaverse 2
Fries and I spoke for nearly an hour about the good old days at the recent WN Seattle event.
Here’s an edited transcript of our interview.
GamesBeat: People assume Microsoft’s success in the game business was preordained. It’s good to have Ed here to remind us how difficult it was and how much heavy lifting had to be done by so many people. You’ve been sharing all this swag on social media about your Xbox days. Why did you keep it all? What’s gotten the best response so far?
Ed Fries: I was worried my wife was getting more followers on Instagram than I was! But no, why did I keep it all? I don’t know. I think Xbox is just such a part of my life that it infected every part of my house as well. It seemed like every cupboard I opened or shelf I looked on, there was something related to Xbox. Today was the very last post. It was kind of bittersweet. But it was fun to get people’s reactions. I’ve been a bit of a collector myself, like with arcade machines. I probably have a bit of a collector’s mindset. I know that collectors have seen the wooden Xbox cut from Japan, and they’re going to be out there scouring the world to find one of those. Anyway, it was just a very fun project.
GamesBeat: You had about 30 days’ worth of things to show?
Fries: I think I did 45 or so. I did a bunch. Some of them were just, “Here’s a bunch of shirts.” Some are better than others, for sure. As far as the best response, definitely the custom Xboxes, and the Japanese Xbox signed by Bill Gates for my son. The Japanese launch was February 22, 2002, and my first son was born on March 21, 2002. Bill knew I was having a kid, but didn’t know his name, so he just wrote, “Ed Junior’s First Toy” on that Xbox and signed it. That was a good one.
GamesBeat: To refresh people about some of your career, I’ll read some things here, but maybe you can chime in about what some of this early experience was like in games back then. You joined Microsoft as an intern in 1985 and as an employee in 1986. Worked on Office and Excel. Took over the games division in 1995 when it had 150 developers. People said, “Why are you throwing your career away?”
Fries: If I can go back a bit before that, I started writing games in high school. I was in high school starting in 1979, and we had the first Apple IIs at school. I was lucky enough to get an Atari 800, and I taught myself to program, first in BASIC and assembly. I started writing games. I wrote an assembly version of Space War, and then a version of Frogger called Froggy. Someone saw it at a company called Romox down in California. They somehow found me. I have no idea how. All it said was “By E. Fries.” But they tracked it back to me.
It was my dream at that time to go into games. I worked for them through the end of high school and the first couple years of college. I was in college in 1984 when the game industry famously melted down. All these game companies went out of business, including the one I worked for. I had to get a real job, so I went to work at Microsoft. They put me on the first version of Excel for Windows. I was the youngest of seven programmers. We had a really difficult task to fight Lotus. Lotus 1-2-3 was the biggest PC software product in the world, and Lotus was the biggest PC software company. They were bigger than Microsoft. It was fun to be this kind of rebellious underdog group trying to go against the big guys. Which was sort of the theme of my career.
I did that for five years. I worked my way up from youngest programmer to co-lead programmer. That was called the technical lead at Microsoft. Then I moved over to run Word, where we were battling WordPerfect. We tried to do to them what we did to Lotus, which is build a better product and beat them. Spent five years doing that. Then basically my bosses approached me and said, “The next step for you is to run a business. You should look around the company and find something that would fit.”
They suggested I go down to visit PowerPoint, so I went down to California and visited them. There was a job doing a search thing. I looked at this inactive TV thing with Hank Vigil. Anyway, a bunch of stuff. But then I stumbled on the games job. The head of the games group was leaving. They were looking for someone to run it. To me that was perfect. I was super excited about taking that job. I talked to my bosses and they said–multiple VPs called me into their offices. One said I was committing career suicide. Another told me, “Why would you leave Office, one of the most important parts of this company, to go work on something no one cares about?” That’s what they said about the games business in the mid-’90s.
Fortunately I didn’t listen to them. I stuck to it and said, “This is what I really want to do.”
GamesBeat: In 1995 they already had 150 developers, though? That was Flight Simulator?
Fries: They had–I think they only had about 60 full-time employees at the time. It was about the same size as the group that I managed on Word. But they had a bunch of contractors, which was a way people in Microsoft, especially in that part of the company, would get around headcount limits. They did have quite a few contractors. As you alluded, they had just acquired BAO Corporation in Chicago, the makers of Flight Sim. One of the first things I did was move them out here and get them settled in Seattle.
GamesBeat: Back in the days when you could move developers around the country.
Fries: We moved Bungie years later, of course.
GamesBeat: You had a lot of things to invest in. You bought companies like Bungie, Ensemble Studios, Rare–
Fries: FASA, many others.
GamesBeat: It turned out Age of Empires was the ticket into the real game industry.
Fries: The first year, of course I wasn’t starting from scratch. They had a group of products in development, most of which I’m guessing nobody here could name. But games like Close Combat and Deadly Tide. Hellbender. I was a big Command and Conquer player, and when I came to interview they showed me an early version of Ensemble’s Age of Empires. I was excited to see they were doing something in realtime strategy. Ensemble was great to work with. The second year I was there they launched that game, and it became our second big hit alongside Flight Simulator. The games press especially didn’t ever really give us credit for Flight Sim as a game. Age was even more important in the sense that it gave us some credibility as makers of hardcore games.
GamesBeat: You were kind of the adult supervising the games area. You had these four renegades–well, first there was the whole Alex St. John thing. But you had the renegades coming to propose this Xbox thing. You were the fifth person to sign on to it. What was it that made you believe in the plan?
Fries: Now we’ve moved all the way up to the late ‘90s. By then we had made more acquisitions like FASA, MechWarrior, Crimson Skies, things like that. Our share of the PC gaming business was growing. As our share grew it got harder and harder to get that next point of share. By then I thought of EA as the competitor. We wanted to get bigger than them some day. We’d tried to buy Blizzard. We’d tried to buy Westwood. I thought I had a done deal to buy Westwood, went on my honeymoon, and when I came back the deal fell apart. EA bought them while I was gone. Stuff happens.
I had just started to think about–maybe it would be easier to grow our business in the console side of things. We could take some of our PC games and move them over to console. When these guys from the DirectX team wanted to meet with me, I knew Seamus Blackley.
GamesBeat: Seamus Blackley, Kevin Bachus, Otto Berkes, and Ted Hase. [The original Xbox instigators].
Fries: They came to my office with this crazy idea. They were from the DirectX group, and so of course they wanted to make this thing called the DirectX Box, or Xbox for short. It was very different from what we shipped. It was a Windows PC that was in a box that made it look more like a console, and then pretended to be a console. You would stick a PC game in it and it would quietly install it in the background then it would run. It would behave like putting in a disc to play a game. That was the original proposal.
Naively I thought, “Yeah, this would be great. We have all these PC games we could easily port to this machine.” Which isn’t at all what ended up happening. But I put my support behind that project.
GamesBeat: And you were kind of the adult in the room that gave this project more credibility.
Fries: Well, by then I had a team of maybe 400, 500 people. Those guys were a small group of evangelists on the DirectX team. Having a general manager behind them certainly helped.
GamesBeat: They were very attached to it as a project. They were putting all of their emotions into it. But from your level, how did you see it as well? Did you feel as invested in it as they were?
Fries: It’s funny you ask that. They were actually kind of mad at me. Rick Thompson came over. He was the VP in charge of hardware at the company. His group had made mice and keyboards and things like that. Even controllers. Everybody on that early team they were forming left their job to go. Everyone quit their job but me to focus on Xbox. I said, “No, I can do my day job and participate in this.” They didn’t feel like I was as invested as they were. But none of them had a group that big to deal with either. I was definitely ready to fall back on my PC game business, to not walk away from that.
GamesBeat: It didn’t seem, even at this stage, like a foregone conclusion, right? There was still some–
Fries: To me it still seemed like a pretty wacky idea. We had no idea if we were going to get approval for it.
GamesBeat: There was the big beauty contest. There was the battle with the folks from the WebTV side, a little internecine fight at Microsoft over which project to approve.
Fries: Right. They proposed something very much like–completely custom hardware, custom software, effectively a PlayStation. We proposed something that was very much like a PC. Ultimately what shipped was somewhere in between.
GamesBeat: Even so, it was interesting how you–you got the support of the whole company. You got Bill and Steve Ballmer approving it. But it still seemed like a struggle in different ways. I remember–this is much later in the timeline, but when you bought Rare for $375 million, some of the feedback you got from your boss was, “Okay, what else are you going to cut? You’re spending way more on this thing than anything else.”
Fries: That’s jumping way into the future. I’m not ready to get all the way there yet. We should get through launch before we talk about post-launch.
GamesBeat: But I’m trying to emphasize the challenge that was there. This wasn’t an easy project.
Fries: We were asking for a lot. We were asking to basically move off-campus into a different set of buildings where we could be left alone. As much as we were asking for help, we were asking to be left alone, which says something about being part of a big company. We want to build this thing. Leave us alone so we can do it. Give us the resources we need. That’s what they agreed to on Valentine’s Day. This was February 2000, Valentine’s Day. I don’t think we want to go into that whole story right now, but if you watch the Xbox docuseries, you can see that on YouTube next month. That story’s in there.
One of the things I posted was a few pictures of a deck, when I was posting all this stuff on social media. I posted a picture of the deck from September 1999. Not that long before the February meeting in 2000. At that point our ship date was still in 2000. November 2000. Which is just really crazy. That would have been a year, just a little over a year from when that deck was made. That made no sense. It just shows how little we understood.
But when the Xbox was approved in February 2000, we only gave ourselves–less than two years to build a piece of hardware from scratch, and all the launch games from scratch. It had to be done months early back then. You had to build things into boxes and ship them all over the world, put them into stores. If we had really thought it through we would have realized it was crazy. But we didn’t.
GamesBeat: You still came out 20 months after the PlayStation 2 shipped. You might have thought, “We have to come out at the same time or the game’s over.” Did you ever feel like you were weighed down too much in your decision-making, and you should have moved faster?
Fries: That’s probably why that original date was 2000 instead of 2001. Honestly, what I remember is being skeptical about whether this project was going to be approved at all, up until very late. The Valentine’s Day Massacre certainly could have gone either way. But once it was approved, there wasn’t really, from my point of view, any room for reflection. We’re on this train from hell to go from here to November 2001. We have to do everything we can do to build the hardware, build the software, build the system and games, and make this launch. That’s what we were all focused on. We weren’t thinking beyond that.
GamesBeat: It felt pretty real from the outside when Bill Gates went on stage at GDC in March 2000 and said, “We’ll build this.”
Fries: That’s why the Valentine’s Day Massacre was when it was. If they approved it that day he was committing to go on stage at GDC the next month.
GamesBeat: There was a thing at Microsoft called the strategy tax. Here we get into some lessons from Xbox, maybe, for other people. The problem in a big company is that you’re always thinking, “Okay, let’s slow down. Let’s think about this. Let’s come up with a strategy. We’ll get everybody on board with it.” And by the time you do that you’ve wasted so much time that it’s like this strategy tax. I think of Rick Thompson going out to all the game companies and saying, “Can we buy you?” Going to Nintendo and saying, “Can we buy you?” Going to EA and saying, “Can we buy you guys?” And at some point realizing that you had to make this yourselves. You couldn’t rely on Michael Dell to make the box work.
Fries: That’s about the time that Rick quit. He put together a whole business proposal, how much it was going to cost, and he started to realize how much money the project was going to lose. We couldn’t do it with OEMs, like you said. I remember him saying, “Guys, I like to work on businesses that make money.” That’s basically why he left, as I recall it.
Then my boss, Robbie Bach, stepped in in his place. Robbie didn’t have that kind of spirit. So we were good to go again.
GamesBeat: It introduces that idea of–you have to lose a whole lot of money as your ante into the competition. That’s a hard thing for businesspeople to get their heads around.
Fries: It is, but the flip side of that was, at that time in Microsoft, we were making so much money on Office, so much money on Windows, that almost nothing else we could propose made sense to do. Almost any idea a small group might have to create a new business, it just wasn’t big enough, even if it succeeded wildly, to affect the bottom line of the company. At least Xbox, yeah, it was gonna be a big risk, a big investment, but it was in a really big category, and one that–it provided 40 percent of Sony’s profit. Sony was at peak. Sony was a great company back then. It was going to be expensive, but if we won it was going to be worthwhile.
GamesBeat: I guess there are a lot of parallels to things happening now with–Facebook makes a ton of money in social media. They have to figure out what to do with that. They don’t want to miss the next smartphone business, so they’re pouring it all into virtual reality. That’s their bet.
Fries: It’s one of the hardest things to do when you’re a company, finding another adjacent business you can be successful in. Microsoft at least had several businesses at that point. It wasn’t all Office or all Windows. But yeah, you’re vulnerable when you have just one revenue source. Someone like, say, Apple can attack someone like Facebook by beating up on their ability to collect ad revenue.
GamesBeat: You have to make a big bet in order to potentially build a new, desirable business that sits alongside Excel or whatever. You can’t just move into a small business.
Fries: When I went over there they said I was going to work on something no one cares about. At least this project was big enough that people might care about it. Or we might leave a big hole that everyone was mad about. But at least they’d care.
GamesBeat: In some ways it felt like a movement, too. You guys believed in games and gamer culture. This was going to become something more important in the world.
Fries: I think that’s something that some of the evangelists brought in, people like Seamus and J Allard. We were already trying to push that point of view as well within our game publishing business. There was a lot of tension, because the Robbie and Mitch side, the sales and marketing side, they kept trying to make the platform–well, can it be about more than games? And I would say, “You don’t understand. Games will be the biggest media in the world, and you say you want it to be about more than games?” They’d say, “Yeah, we don’t really get the game thing. It seems like this niche thing. Can it play movies? Can it play music?”
GamesBeat: You gave that speech, the introduction to the press, and it did feel like you were one of the believers. You were talking about how games at some point could take their rightful place at the top of all entertainment.
Fries: Exactly. I’m still giving that speech, 20 years later. We’re almost there. Games have been the fastest-growing media business in the world for quite a while now. The pandemic just made it grow even faster.
GamesBeat: There was this other ethos behind it, too, of appreciating the creators, the developers. Elevating them to the status of artists. They’re people who should be appreciated, and not necessarily treated the way they were by the big console companies.
Fries: I gave a speech at Gamestock where I said we should strive to create not just entertainment, but art. The reality was that we were PC developers, PC game developers for the most part, trying to understand the console business. And the console business, you have to remember, was ruled by the Japanese at that time. They’d controlled the console business since the mid-’80s. All the biggest companies were Japanese. The biggest franchises were Japanese. And yet in the PC world, where we came from, there were incredibly exciting things happening with multiplayer games, first-person shooters, that kind of thing.
The question for us was, should this box be about all the great things that are happening western game development, in PC game development? Can we bring that to the console world? Or does that mean–when we try to do that, does that mean we just don’t understand the console world? When we talked to the press, especially the console press, they would say, “Who’s your Mario? Your games look dark and gritty, not bright and colorful like console games.” And what that meant was they didn’t look Japanese. Internally we didn’t really know whether we should trust our guts as western PC game developers and try to bring the best content we knew how to make, or did we have to change what we were making in some way because this audience was somehow fundamentally different from the people we’d been selling to before?
We ended up somewhere in between. The debate was settled very quickly the day after we launched, when Halo sold and Munch’s Oddysee did not. Hey, now we know.
GamesBeat: Halo left the cartoon world behind.
Fries: It became okay for us to be different. In fact, it became what was good about Xbox. We weren’t exactly like another PlayStation or Gamecube. We represented a different philosophy of gaming, a different style of games. In some ways we represented where games were going as far as online multiplayer and those kinds of things.
GamesBeat: You retired from Microsoft in 2004. You’d been there 18 years and you had 18 million-selling hits. Who would have thought that Halo was the only one that mattered?
Fries: Well, if you look–Flight Simulator. Age of Empires. There’s a plaque hanging in my office that somebody gave me when Age of Empires went over 15 million copies sold. And then Halo. Very important games. But lots of other games that were fun too, that maybe weren’t the biggest sellers, but I’m proud of them. Crimson Skies from the FASA guys is a game I thought was important in its time. Some of the fun stuff out of Japan like Blinx. Working with Tim Schafer on Psychonauts was a great time.
GamesBeat: You posted the plaque you got when you retired. It had all the games on there. It looked like 112 games.
Fries: There were already people this morning when I left–they were posting, “Hey, they left out this one!” They may have missed a few. But Gears of War started while I was there. Fable, obviously, started while I was there, and finished not long after I left. Forza Motorsport started while I was there. I think we did alright. We created some franchises.
GamesBeat: There was this challenging time of–as much as you approved some of these games with such high potential, you also had to cut back a lot. There were times when Microsoft had to shave back the number of developers working on games.
Fries: Yeah, that’s when I left.
GamesBeat: That was the conflict of–give us bigger hits, but do it with fewer people. You had to watch your costs, or you were told to watch your costs.
Fries: Which on hand is perfectly natural. Xbox not only was losing money, but the biggest mistake we made, if you can say that–I don’t think we had a choice at the time. But the biggest mistake we made was that the box was not at all designed to be cost-reduceable. The first few years are okay when you’re selling at a relatively high price, but meanwhile Sony is integrating the parts in their PlayStation, making them smaller to the point where it’s practically a PlayStation on a chip.
We could not do that. For one thing, we had a hard drive. Hard drives don’t get cheaper. They just get bigger. They still cost, at that time, 50 bucks. It’s just how much space you get for that. Worse, we had an Intel part and an Nvidia part. We didn’t own the IP for the CPU or the GPU. There was no way we could integrate those parts together to shrink the machine. So definitely on the hardware side, we were losing money.
Meanwhile, on the software side, which was my business, we were also losing money. This is a tension that happens even at Sony. Maybe not at Nintendo, because they’re really good at making games really cheaply. But when you’re doing first party, you can only sell on your own console. Are you doing it to make money, or are you doing it to sell the console? Is it a marketing expense to make the next version of Halo? If they really wanted me to make my business profitable, I’d put out a PlayStation version of Halo and be profitable tomorrow. That would be my response. But they didn’t like to hear that. I’ve talked to Shu Yoshida at Sony. When he was running first party he faced a lot of the same conflicts.
It was almost like a deal with the devil in a way. When we agreed to do the Valentine’s Day Massacre, when we agreed to launch this console, and then the whole company would leave us alone to do it–after we launched, the whole company came back. The whole company wanted some stuff. They wanted some strategy stuff, like you mentioned. All of a sudden, hey, this looked really good. It was really popular. We were getting lots of press. How come you’re not using Internet Explorer? How come you’re not running Windows? All that stuff came rushing back in. And then of course there were the actual costs of the project.
You know this better than anyone, but that was a lot of what dictated why we did Xbox 360, how we did Xbox 360, why we cut the life of the first Xbox short and launched Xbox 360 early, why we used the processor that we did, all of that. That’s another story. But all that happened while I was still there. I left in the middle of 360 planning.
GamesBeat: Long story short, the original Xbox lost somewhere around $4 billion over four years. And now Microsoft’s making profits on $3.7 billion in revenue per quarter. Not bad in the long run. A bet that was worth making.
Fries: I’m laughing because I got to see Peter Moore last week. I have a Peter Moore story, but over the years I’ve started to wonder if it really happened, or if I just imagined. When I got to see Peter last week I asked him about it, in a way that would give him a chance to say what really happened.
It was a meeting around that time, 2003 or so. Peter Moore had just joined the group. We were going off to meet with Steve Ballmer about Xbox Live. We were updating him on Xbox Live and what was going on there. Ballmer, who’s a very excitable guy, was just getting more and more excited, more enthused about this Xbox Live thing. It’s going to be a subscription. All these people will pay a recurring fee. He’s getting more and more excited sitting there at the table. He starts to do the math in his head and starts to subconsciously pound on the table. He’s sitting there pounding the table and getting halfway out his seat, getting really excited. “This is going to be really great!”
He smashes the Polycom telephone, the speakerphone there. Those three-armed speakerphones you have in the middle of the room. Crash! Smashed it with his fist because he was so excited. I turned to Peter Moore sitting next to me and said, “Welcome to Microsoft.”
But that was it. Nobody had done something like Xbox Live. Nobody knew what the revenue potential of that was going to be. It really was something that turned things around for Xbox as a project as far as making money.
GamesBeat: And then there was life after Microsoft. You’ve been doing some interesting things. Do you want to fill us in quickly?
Fries: I left in 2004. My first son, as we mentioned–Xander, he was named after the Xbox. He was born in March of 2002. My second son, Jasper, was on the way in 2004. I was turning 40. I’d been at the company almost 20 years. I decided it was a good time for me to leave.
I wasn’t sure what I was going to do other than raise two boys. It was actually a great time to leave, because I was a huge Blizzard fan, and that was the summer World of Warcraft came out. I got in a guild with a bunch of my old buddies from my group. A lot of them had kids. We would be on doing Molten Core raids and someone would say, “Hey, wait, gotta change a diaper.” We’d have to just go on with the raid.
I slowly got sucked into more and more stuff. People contacted me and said, “Hey, can you come help us out with this game company we’re starting? We need an advisor. We need a board member.” I started doing more and more of that. I started this crazy company to 3D print World of Warcraft characters. That was fun.
I guess to me, what I loved to do, and I still love to do, is just work with game developers and try to give them the resources they need to bring their ideas to life. As a gamer, it’s a way to get more cool games to come out.
GamesBeat: And you formalized that with this venture fund.
Fries: Yeah, that’s what I’m doing even more so today. Now I have, probably for the first time, a full-time job. Three years ago I was approached by the guys at PUBG Corp in Korea. PUBG was taking off and they were looking at ways to get connected with developers in the west. They asked if I would start a venture fund. I said I’d do it if I could do it my way. They wanted to know what that meant.
I proposed making a lot of relatively small investments, $500,000 each, in a lot of game companies, 50 game companies, with the goal of connecting the founders of all 50 companies together to form a community where they could all share and help each other to be successful. That’s 1Up Ventures. I’m the only full-time employee. My part-time partner is Kelly Wallick, who you may know runs the Indie Megabooth and has made it possible for indie developers around the world to get into big trade shows. We’ve been running the fund officially for two and a half years and made 36 investments so far. We’re well on our way to 50. We’re starting to think about a second fund, because this one has been super fun to be part of. It’s been good for the investors as well, frankly.
GamesBeat: That brings us up to date, mostly. Does anybody have questions? If you do, go ahead and raise your hand.
Question: Could you share more about what stage 1Up Ventures is working with companies?
Fries: I’m getting good at talking VC talk, so I apologize to the non-VC people here. I don’t like the names for stages. I just use a dollar value. We like to invest sub-$20 million valuation. That’s because we only invest $500,000. Higher than that, we’d have such a small percentage of the company. We never lead. We’re always coming in with a consortium of other investors.
Of course the key one is the lead investor. At this point we’ve co-invested with every major lead investor in the game business. We’re particularly close to a few of them. Bitkraft, for example, is a close partner of ours. But we’ve invested with everybody. Typically I tell people that if they can get one of the lead investors interested, that’s usually the first step to getting us involved.
When I started two and a half years ago, I told people that we were only going to invest in video game development companies. They said that was crazy. Why don’t you invest in platforms and tools and publishers? I wasn’t going to do that. I wanted to create this community. I wanted everyone in the community to be doing similar things. But I didn’t know the market was going to come to me. With the pandemic, tons of people want to invest in game companies. Two and a half years ago it was seen as a hit-driven business that you shouldn’t invest in.
Now the rounds are quite competitive, actually. Fortunately we’ve been around for a while and we have a good reputation. People look at all the companies in our portfolio that are part of this community and say, “Hey, I want a chance to interact with Raph Koster every day.” Or Robin Hunicke or whoever. We focused on diversity from the beginning. More than a third of our companies have women founders or co-founders. That’s also very attractive to startup developers.
GamesBeat: You mentioned at one point that there were more than 100 game-focused investment funds that you were in contact with.
Fries: Yeah, and that’s not even counting the crypto ones now. Now there’s probably 100 more that are crypto funds trying to invest in games. That’s a whole other thing.
GamesBeat: A couple of hundred companies trying to invest in games.
Fries: There’s a lot of money for game developers out there now. Part of it is that the world is changing. If you look at–I used to run a publisher. A publisher did three things. They did the financing of the game. They did the marketing of the game. And they did the distribution. Distribution is free now for anyone, easy to get. Marketing isn’t what it used to be. When we did marketing, a lot of it was tied to distribution. It was buying endcaps in stores. It was running ads in newspapers and things like that. Now marketing is getting some streamers to play your game, something like that. It’s important, but it’s something that pretty much anyone can get to with a little help.
That leaves the final thing, which is financing. Venture is stepping in more and more, funding bigger and bigger game projects. I really think it’s going to be an alternate way that products come all the way to market in the future.
Question: Would you say that it’s not a hit-driven industry anymore, but becoming more of a genre-driven industry?
Fries: Because I come from a publishing background, when I talk to investors, I don’t fight about it being hit-driven. In a way it is. Every big publisher is built around a few franchises that are super important to them. But what I say is that the way to approach that is with a broad portfolio. Our strategy is set up so that we can invest all over the world in any game company. If you’re buying into our fund, not to make this sound like an ad, you’re going to get part of 50 bets in the game business. Whereas if you’re a lead investor–I’m glad they’re there. I really need them every time we do a deal. But they’re putting a lot more in each deal, so they can do fewer deals. It’s not just a financial commitment. Usually they have to take board seats and things like that. There are fewer investments they can do.
If you’re going to do the game business, I like our broad approach. When you try to put a portfolio together, whether you’re running a publisher or a venture fund, to me it’s about diversity. Diversity of genres, diversity of technologies, diversity of locations, diversity of skill levels. I love working with people who have 25 years of experience, but I like to take a few risks on up and coming new people too. That’s how I look at our portfolio. Making as many different kinds of bets as possible and hoping that one, like Splitgate, will come through for us.
GamesBeat: Do you feel like this is fulfilling, but also fulfilling in a different way than when you were at Xbox?
Fries: I get out of it what I got out of it back then. I get to spend my days talking to game developers, talking about games, which I love, and finding ways to help them get the resources that they need to do the work they want to do. For me it hasn’t really changed.
Question: You’ve obviously had a ton of games cross your desk. What separates the good ones from the bad ones, in your opinion?
Fries: You know, games are ideas. It’s funny. I got mail from J Allard yesterday, which was an out of the blue surprise. I don’t hear from him very often. Maybe once a decade. But it was a very nice email congratulating me on the 20th anniversary of Xbox, which was last night. One of the things he said there was, “Ideas are cheap.” This idea of doing a console, it doesn’t really mean anything. It’s the execution that matters. That’s true for games more than just about anything.
I think of games as a risky thing, a really difficult thing. That’s what makes them exciting to me. They have all the things that can go wrong with a piece of software combined with all the things that can go wrong with a piece of entertainment. You put those two things together, it’s a really hard business we work in. Really, really hard. Experience matters. Dedication matters. Believing in what you do matters.
The projects I’ve seen that are sad are where the team itself doesn’t believe in it. When they don’t believe in it, it’s never going to be successful. I’ll talk to anybody. I love to hear what they want to do. But I’m thinking more about that stuff than if they’re telling me they’re going to knock a soccer ball around a field with a car, something dumb like that. [Laughs]
GamesBeat: Wasn’t Psychonauts one of the calls you had to make? Today they got nominated for the Game Awards, game of the year.
Fries: You may not remember quite right. I was a big fan of Psychonauts. After I left they cancelled it. I went and worked with Tim to try to help get Psychonauts done. And now, 20 years later, Microsoft and my old group went and bought Double Fine. They kicked them out and bought them back. I’m very optimistic about where Xbox is going. I love that they’re back investing in studios and working to beef up their first-party teams. That’s great.
GamesBeat: When you started with Xbox you had 400 developers and 10 studios, I think it was? They have to be past 25 studios now, and who knows how many people.
Fries: When I left we had 1,200 people on my teams. But yeah, I don’t know how it went up and down after that.
GamesBeat: I always thought it was odd that Microsoft got into the business, but then didn’t really size it as well as it could have been sized. With those 1,200 developers you had, you were going up again 2,500 at Sony.
Fries: We liked being the underdog. I know people don’t think of Microsoft as an underdog. We always had headcount constraints on us. But also, we had the ability to do acquisitions like Rare, if we could make a compelling case for it.
GamesBeat: They don’t seem to be under that constraint today. They’re buying as many as they can. It seems like they’re finally free of the notion that if you add here, you have to cut back somewhere else.
Fries: I don’t know the internal political situation right now. I can only see their actions in the market. But they’re out there buying great developers again. That’s the right thing for them to do.
Question: I was hoping you could talk more about how you help developers to share information with each other through your fund, helping them solve each other’s problems.
Fries: 1Up Ventures is actually based on another group that I was part of for about the last dozen years, started by a local indie developer. I have to be careful what I say, because this is a secret group. I’m not supposed to talk too much about it. He started with this idea that he would build a group of 50 game developers. I got grandfathered in, I guess, as one of the 50. The group’s been around for more than a dozen years, started just as a mailing list. Because it was capped at 50 it meant everyone knew everyone else. There weren’t any people on the mailing list you didn’t know. It focused on people meeting each other in person. Every E3 or GDC or events like that, whatever subset of the 50 that were there would get together for lunch or dinner. Building personal relationships with people.
Once you have personal relationships with a limited set of people where you can know everyone, that’s really when you start to get communication and sharing happening. You have to have that trust level first. Once the trust is there, then people open up and want to help each other. Several really big game companies that you guys know have grown out of that original group, and I hope we’ll be able to say the same thing for 1Up.
Question: What experience from Xbox would you say is helping you the most right now in your venture business?
Fries: I probably know more about games than most of the other venture guys that compete against. I’ve sat through thousands of pitches since back in the Xbox days. I feel pretty comfortable looking at games in development, when they’re early, and being able to see the promise there. I can look beyond the art to what’s really happening and why it’s interesting. That’s probably the thing I have more than anything.
I have another partner, Chris Wheaton. He handles the finance and legal stuff. He runs the VC part of the VC, because I don’t know how to do that. But when it comes to dealing with game developers and making bets on games, I feel like I’m pretty good at that one.
GamesBeat’s creed when covering the game industry is “where passion meets business.” What does this mean? We want to tell you how the news matters to you — not just as a decision-maker at a game studio, but also as a fan of games. Whether you read our articles, listen to our podcasts, or watch our videos, GamesBeat will help you learn about the industry and enjoy engaging with it.
How will you do that? Membership includes access to:
- Newsletters, such as DeanBeat
- The wonderful, educational, and fun speakers at our events
- Networking opportunities
- Special members-only interviews, chats, and “open office” events with GamesBeat staff
- Chatting with community members, GamesBeat staff, and other guests in our Discord
- And maybe even a fun prize or two
- Introductions to like-minded parties
Become a member