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Alleged 'Xbox 720' document sparks internet speculation
Alleged 'Xbox 720' document sparks internet speculation
June 18, 2012 | By Mike Rose, Kris Graft

With zero details emerging from this month's E3 regarding the next Xbox or PlayStation, game industry followers over the weekend proved just how hungry they are for any tidbits of information regarding next generation video game hardware.

An alleged Microsoft document, dated 2010, details what's supposed to be the next Xbox video game console, with mention of cloud game capabilities and heavily-updated Kinect motion control camera hardware, among other features.

While some outlets are reporting on the document as a concrete plan for the future of Xbox, the 56-page document -- if legitimate -- seems like more of a let-your-imagination-run-free Xbox 720 internal wishlist, as opposed to a concrete product description.

The document originally appeared on social publishing website Scribd, but has now been taken down from the website at the request of Microsoft's lawyers Covington & Burling LLP, a move that has only given the rumors more traction. Copies of the document have proliferated the web, even though it was taken down from the original source.

If it's all a hoax, it's an elaborate one -- a lot of effort has been put into graphs, artwork, business strategies, and proposed product roadmap through 2015.

So what were some of these alleged "Xbox 720" details? The document priced the console at $299 with a release date of holiday 2013, and a predicted 10-year lifecycle.

Those three basic details are believable: the Xbox 360 core system launched at $299; holiday 2013 would be a full year after the launch of the Nintendo Wii U, and at eight years after the launch of the Xbox 360, Microsoft will already be stretching the lifespan of current hardware; and a 10-year hardware lifecycle is one that both Sony and Microsoft have touted for their respective current generation home video game hardware.

xbox 720-1.jpgThe document also mentions support for Sony's Blu-ray disc format, native 3D output, concurrent apps and a 6x increase in performance compared to the Xbox 360, while being designed to be scalable when it comes to the number of CPU cores available.

It goes on to detail the "Kinect 2," an upgrade to the original Kinect motion-control hardware that features better accuracy, improved voice recognition and support for motion tracking for up to four players. Streaming cloud games and cloud storage were also mentioned in the document, which named cloud game company OnLive as a competitor.

Glasses for Kinect are also described, with the codename "Project Fortaleza" -- augmented-reality eyeglasses that, as the leaked document describes, would start off as living-room, wifi-based peripherals for more immersive entertainment experiences. In later years (2015, the document forecasts), those glasses would be radio/4G-based mobile devices in the vein of Google's Project Glass.

xbox 720-2.jpgAlso described is synchronization between users' mobile devices, PCs and Xbox hardware -- which might sound familiar if you're keeping up with Microsoft's SmartGlass.

Even if the document did come from Microsoft, it's notable that the document states the information is from 2010, and any plan will have no doubt been put through numerous iterations since then (for example, the emphasis on 3D-stereoscopic games on home consoles has died down since 2010). Microsoft told Gamasutra that it does not comment on rumors and speculation.

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Jr Hawkins
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Why does this document call it "Kinect 2" instead of using a code name?

This would of been right around the release of the Kinect and any talk about MS "abandoning" the hardware in a few years would of hurt the launch even if the source was eavesdropping.

Gary Beason
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Never underestimate the lengths to which fanboys will go for a hoax.

I'm amazed at some of the reactions, which include people believing that a $300 Xbox will include all those features.

It took Microsoft a while to start making money on the 360, and those RROD costs didn't help. I wonder if they can really afford to sell a console that doesn't make money on day 1. At the same time, they see what a more expensive console launch did for Sony.

Merc Hoffner
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...On the other hand... we can't exactly put it past Microsoft to overestimate capability/functionality and MASSIVELY underestimate manufacturing cost and power consumption. Remember, the 360 was also strategically 'designed' to be affordable and relatively inexpensive to manufacture, and one would similarly have thought they'd learn from the dangers of systemic design failure from the first Xbox...whoops!

Given that these slides apparently came from 2010, and that it looks as much like internal marketing bumf as anything else, and also given they'd internally convinced themselves both of their design and manufacturing genius and that their own business was about to scale enormously with Kinect (gaining huge economies of scale with parts), I could believe that this was a real projection, whether or not it's nonsensical.

Bear in mind that leaked specs of a Tri-core IBM powered Xbox 2 seemed silly and fanboyish in early 2004, but turned out to be 100% legit. Quite frankly informed fanboys would be more sensible.

Amir Sharar
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"It took Microsoft a while to start making money on the 360..."

Actually Gamasutra had an article back in 2006 about this very topic:

Estimates show that the console only took a year to get back to profitability. The $75 number doesn't include the cost of shipping, packaging, etc. but give you an indication that hardware-wise, they were able to drastically reduce costs. For reference, iSuppli also estimated at least a $125 loss for the 360 when it was released. That's an estimate $200 hardware cost reduction in just over a year.

I fully expect MS, along with other manufacturers, to sell their consoles at a loss. With the sales of peripherals and games, it is easy to make that loss back fairly quickly. With consoles it all works out rather nicely, as new adopters are getting their new consoles they are buying much needed initial stock of accessories. Controllers selling for $60 with their huge margins help mitigate those losses. Speaking of which they may be bluetooth this time, if they want us to be able to play games on our phones/tablets.

How much is another issue. Sony learned that they went too far. MS hit that sweet spot of price/power with the 360 and I think they can with the new console. Some things like how much memory, capacity of solid state hard drives (if they will be included) may be sacrificed to keep costs low, so the price target isn't impossible to achieve.

After reading through it I think it's a legit proposed roadmap. It aligns itself with some MS patents revealed in the past (like the ability to record gameplay when playing or TV in the background), recently announced stuff (Smartglass), and the innovation we are seeing with the new stuff is very much in-line with MS's strengths and aspirations. Apple and Google haven't yet dominated the living room space, but they are on their way to making an impact. The document mentions partnering with Operators...something they have been doing well here in Canada. In the last year they have introduced the Optik service that allows users to stream content from their MS "Mediaroom" powered DVR to Xboxes in the house. Seems like the "720" is now that box and will stream to other screens (with processors) in the house.

If it was indeed a fake, whoever did it really did their homework.

Amir Sharar
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"You forget the billions the RROD costed for MS, it's part of the hardware costs and drives the console deep in th red."

That's not a cost you would factor in when developing and pricing a product.

Yes, you do factor in post-release hardware support with possible upgrades and fixes, but extra-ordinary costs never factor into the price of a product. Much like how a new car's price does not reflect a possible recall if there was a problem found with it.

Much of this can be done considering how the accounting is done. In the case of MS they took a $1billion loss that factored in the cost to address the situation at that time, as well as future repairs. It was an estimate based on the fact that they extended their warranty policy.

Note the manner in which it only affected one balance sheet in 2007, even though that estimated cost was affecting business years thereafter.

Secondly MS admitted that it wasn't a vendor issue, and rather an MS engineering issue (which is pretty obvious to those who have repaired their own console), and the question posed was whether or not MS could pack all of this hardware at a $299 price point. Again, the price of the console comes from vendors, and isn't based on the possibility of an engineering flaw.

So I didn't forget about it, the reality is that these potential problems will never affect the cost of the console components, the manufacturing, the packaging and shipping, and marketing. It might affect testing, if MS chooses more rigorous testing methods, but not enough to add any substantial cost to the console.

In simplest terms, try imagining yourself opening a lemonade stand. To cost out the product you would look at raw materials and labour. You may even consider "testing" (ie. drinking it to make sure it's good) as part of the cost associated in creating the product. Using all of that you might come up with a reasonable price for your product. But you won't consider any possible mistake made in the manufacturing process in attempting to price your lemonade. You might put too much salt in one batch. Those customers might ask for a refund. But you don't charge $5 per glass with the thinking that you might have to cover refunds or litigation costs in case they were ever to happen. That's not how product pricing works. Otherwise everything would be prohibitively expensive considering all the possibilities.

Lastly, retailers sell the consoles at cost. Maybe I'm misunderstanding your statement, "they don't include retailers share, which is one of the biggest part of all costs.", but the retailer doesn't make any money from console hardware sales. Typically retailers sell these machines at cost (with some exceptions where they sell it at an apparent loss, which used to happen in Canada often with the fluctuating dollar).

Merc Hoffner
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On the issue of retailers, as I understood it console hardware has a pretty big margin, but because the boxes take up so much physical shelf space, they may make the retailer far less money per unit area than games, and so retailers are reluctant to put them front and center.

On the issue of hardware power balancing: well, if you push well past Moore's law economic scaling, it's always possible to make a larger chip. This means less dies per wafer and proportionally higher costs per chip...EXCEPT, if you're pushing the limits of manufacturing and building on a new step size (90nm was pretty new at the time) then the per area error rate is still relatively high. This means with a large area chip you have a really high die rejection rate leading to an exponential (and somewhat unpredictable) rise in the per unit cost. Of course as the step technology matures over a year or two the problems very rapidly diminish to a base level, and the area becomes the major cost driver, making the push down to an even smaller step size more economic. Microsoft, and Sony, both pushed well passed ordinary scaling and saw monstrous losses in the first year or so of both machines. Microsoft's problems were, as Christian said, exasserbated by RROD: skimping on small spending for a sensible heat solution and manufacturing control lead to a much higher failure cost. Sony's problems were as I understand it exasserbated in part by an extremely expensive blue laser diode for their drive.

Neither of them built particularly power/economy balanced machines and both lost serious cash in the first two years. As far as I can tell neither are close to recouping their losses (and don't forget the R&D costs) - certainly not Microsoft who's still smarting from the hole they dug with the first Xbox.

Don't let anyone fool you that consoles are always sold at a significant loss. The practice of loss leading wasn't really established until the PSX, and the practice of massive loss leading (losing more than $100 per unit I'd say) wasn't established until the first Xbox. It's subsequently served the Xbox, Xbox 360, PSP and PS3 all very very poorly. There's a reason Nintendo's made more money this generation than Microsoft, Sony and Sega have collectively throughout all of video games history - the biggest of which is that two of those three don't actually sum up to be in the black.

Merc Hoffner
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no worries

Amir Sharar
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I'm not sure if it would be appropriate for me to respond. I might be veering off topic (into things like retail). If the staff at Gamasutra thinks this isn't the place for this discussion, feel free to delete this response, I won't mind.

"MS was fully aware of this problem, when they launched the console."

Do you have a source for this? I'd be interested to see that. I'm not saying you are wrong, it is genuinely news to me if there was an admission (or even implied admission) on MS's part.

"To deliver a 360 without the RROD problem in 2005 would have needed cooling solutions, much more expensive, this had raised the price of the system."

The issue was a bit more complex than that. The heating and cooling of the console affected a number of things. Note that different solutions from the X-Clamp to allowing the solder to overheat and re-cool were never temporary solutions. It would have really required a complete redesign, and the "fixed" units that came out just prior to the Slim were testament to that.

"You can easily see the retailer makes a profit from each sold console, because otherwise they would loose money by discounting the console."

Most of the hardware discounts come straight from the manufacturer. This also includes discounts on controllers and accessories. This is why you see sales on products among many different stores during the same week. Lastly, it isn't unheard of to have retailers lose money on each console sold, as I mentioned with the fluctuating Canadian dollar at one point retailers were in a bind. Again, that money is recouped with games and accessories.

"But if you don't believe me, maybe a statement of Nintendo's Iwata will help, after the price drop of the 3DS, he said at an investor meeting in Tokyo that profit margins of retailers will go down due to the price drop."

First off, it's not a matter of me believing you, but rather that many years ago I worked videogame retail while going to University (while I studied Business and Computer Science), I still have a close eye on the retail aspect of the industry because it makes consumer behaviour easy to predict. Secondly, Nintendo has been pretty good about giving retailers a bit of margin with their Wii and DS units (mainly because they can afford to, technically those items are over-priced). But that is rather marginal, with a $10-15 profit. The price drop of the 3DS likely removed any margin.

"There's a reason Nintendo's made more money this generation than Microsoft, Sony and Sega have collectively throughout all of video games history - the biggest of which is that two of those three don't actually sum up to be in the black. "

I agree with your general point, but keep in mind that there is something just as valuable as having cash in your pocket, and that's mindshare along with goodwill. Diverse companies like Sony and MS can afford losses in one area, if it advances either mindshare or goodwill. The term "Xbox" is now synonymous with videogames, just as "Nintendo", "SEGA", and "PlayStation" before it. Nintendo isn't as diverse and certainly could not afford those losses. MS can remake those losses with its other departments in a matter of a fiscal quarter. Many, many businesses (and even Colleges and Universities) engage in this sort of behaviour. Having each division remain profitable is nice, but not required to having a business that is sustainable and even healthy. Sometimes a cost analysis of an endeavor can show that the benefit is not money but rather consumer mindshare and goodwill. For example, efforts to go green from some products cut into profitability but end up with a product that makes a company look responsible.

Again, this is sort of off topic, in many of my responses I'm talking about marketing concepts more than the issue at hand. If the staff believes it to be irrelevant enough feel free to remove this reply, these lengthy responses may annoy readers. Also Christian I don't mean to sound argumentative, but my understanding (of especially the business end of things) is very different and I felt the need to post a response.

Benjamin Quintero
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man.. It's all a very interesting collection of half-truths in the document. Someone spent a lot of time putting it together.

You know it's a fake because they didn't mention increasing Gold membership fees, dashboard advertisements, or Zune marketplace once.

They did completely pass over any plan to improve product discovery of XBLA games which makes me believe this might be legit though.


Ed Macauley
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I have irrefutable proof that the next gen Xbox is being worked on in Area 51, by bigfoot.

Eric McVinney
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You're both wrong. The internal components are being made by data benders and the outside layer mended and formed by metal benders. Geez people, get your facts straight...

Luis Guimaraes
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I heard the console features and antenna that uses your own unconscious brain to render high end graphics, model physics behaviors and fine tune the art-style to your personal tastes.

But I'm just a bit skeptical about that. The part that the Kinect 2 tracks your eyes to focus all the graphics power on the part of the screen you're looking at seems legit, but mobiles will soon do the same with facetime.

Luis Guimaraes
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But then I think what the audience is really interested in is the all-new 4GB Gore Processing Unit.

Jacob Pederson
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Not to brag, but if true, I totally called "Project Fortaleza" :D

Joe McGinn
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The AR glasses thing is effin' cool. So, I'm guessing that's the part that's not true.

Matt Cratty
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At least my awkward PC ports will have better graphics now.

Joe McGinn
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Well if you really want an awkward PC Microsoft has another product for you (Surface aka the 'origami laptop')

Merc Hoffner
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