What New Coke and Xbox One Have in Common

Disclaimer: Before this turns into a console war, I don’t own an Xbox One or PlayStation 4. My PC and Wii U take up enough free time as is, and there aren’t really any games for me to justify a PS4 or Xbox One right now. If that makes me biased, you can take off now.

It’s been a year since the Xbox One launched, and more than a year since the the Xbox One unveiling and subsequent E3 2013 presentation. In every product unveiling is an analysis, so I thought it would be time for a little hindsight. In this case we’re going to talk about what went wrong.

I’m not here to talk about the chaotic, disorganized mess that was the Xbox One’s messaging and branding. Instead, if you’re uninitiated, Microsoft unveiled dramatic new restrictions on the Xbox One: It would require a daily Internet connection or the system would prevent you from playing your games, and Microsoft was giving publishers the power to control whether or not you could resell, trade, or share your games (with noted developers and publishers often speaking out against used games). These restrictions were place because (ostensibly) Microsoft had a “long term vision”, as described by then-President Don Mattrick, of a digital future. In response to overwhelming backlash, Microsoft eventually backpedaled and removed these restrictions but the debacle had helped Sony position the PlayStation 4 as the generation’s console frontrunner.

The overall scorecard is still in Sony’s favor when it comes to units sold, but I can’t deny – lingering resentment of Microsoft’s behavior aside – that Microsoft has been killing it this holiday season between deals and bundles. Sony may still have a significant lead and Microsoft recently had an extremely disappointing launch in Japan, but it’s clear that Phil Spencer and the Xbox team are working very hard to make up for lost time.

Once upon a time, there was another company called Coca-Cola. That company was going through a tumultuous time in the 1980s due to main competitor Pepsi Cola gaining market share, and so the decision was made by senior management and then-CEO Roberto Goizueta to modify the flavor of Coke to match the sweeter mixture that Pepsi was enjoying so much success with. Thus New Coke was born, and with it one of the most infamous marketing disasters in history.

Contrary to popular belief, New Coke wasn’t received poorly due to the taste itself. In fact, taste tests showed that the sweeter New Coke beat out regular Coke and Pepsi. Tasters were asked if they would buy it and drink it if it were Coca-Cola, most said yes, but that it would take getting used to. A small minority (10-12%), felt alienated and said they might stop drinking Coke together. This minority skewed focus groups due to peer pressure (a common issue with focus groups, but that’s a discussion for another time).

New Coke otherwise needs very little introduction. Despite a relatively successful launch, the most passionate fans of Coke Classic began skewing the national discussion against New Coke. Mainstream outlets reported on the outrage, comedians mocked New Coke, and even Fidel Castro joined the dogpile. After just 77 days, Coca-Cola backpedaled and reintroduced the old flavor. Despite some holdouts, including Goizueta, the ambitious rollout of New Coke was a failure.

The issue wasn’t entirely with the new products unveiled by both Coca-Cola and Microsoft. Coca-Cola’s director of corporate communications, Carlton Curtis, realized over time that they were more upset about the withdrawal of the old formula than the taste of the new one.

So what do these two behemoth-sized companies have in common with their respective marketing blunders?


1. Both Coca-Cola and Microsoft alienated their most passionate and loyal fans.

Coca-Cola severely underestimated the damage of alienating your core audience, with one representative going so far as to admit the company underestimated the passion people had for Classic Coke.  Similarly Microsoft bred resentment, anger and frustration among its most passionate gaming customers. Xbox marketing chief Yusuf Mehdi perfectly encapsulated the problems with the approach Microsoft was taking when defending the Xbox One’s built-in game licensing and used game policies:

While the Internet is decidedly up in arms about the way the Xbox One handles game ownership and online check-ins, Mehdi said it was “hard to say” what the larger reaction from the less attentive mainstream consumers would be. “I think it’s fair to say there’s a segment of consumers at this show in particular who really pay attention, who are very passionate about all aspects of gaming, and that we listen to closely. In a broader set of community, people don’t pay attention to a lot of the details. We’ve seen it in the research, we’ve seen it in a lot of the data points.”

Mehdi’s impression seemed to be that if mainstream audiences didn’t mind the details of the Xbox One’s new DRM-driven policies, that would be okay. Here’s the problem, Yusuf: That “segment” of customers you ignored are your most vocal ones. They’re your pre-order customers, your early adopters, and your word-of-mouth advertising. They’re the people with Xbox Gold accounts and the people most likely to share the best or worst news about your console. Furthermore, let’s also remember that those mainstream consumers aren’t as savvy as passionate gamers when it comes to the industry, trends and the market in general. Who do you think those people are going to ask when it comes time to buy a console for their kids over the holidays?

I’ll answer that for you: In the month of October in 2013 alone, I had seven friends and colleagues relatively unfamiliar with video games approach me about a good game console recommendation for their kids based on my reputation of constantly talking about games on Facebook and Twitter. I told every single one of them to get either a PlayStation 4 or a Wii U based on the lack of dedication to gaming I saw on the Xbox One. Even this year, I’m regularly being asked for advice on consoles as gifts, and I still tend to steer people towards the PS4 and Wii U.

You don’t need a huge audience for your product to sink or swim. You need a smaller, vocal audience who either love it to death or hate everything about it.


2. Both Coca-Cola and Microsoft forced their customers to go all-in

Coca-Cola rejected the idea of just bottling and selling the New Coke mixture is a separate flavor. There were some valid reasons for this including distribution issues, but it’s fascinating to consider what may have happened had Coca-Cola sold the new mixture as “Sweet Coke” or some equivalent. Sam Craig, professor of marketing and international business at the Stern School of Business at New York University, noted that “They didn’t ask the critical question of Coke users: Do you want a new Coke? By failing to ask that critical question, they had to backpedal very quickly.”

Microsoft, meanwhile, didn’t even give gamers the choice to opt-in to the grand vision Microsoft supposedly had with the Xbox One’s new policies at the time. Nor did they really ask if gamers really wanted disc-free play and family sharing at the expense of needing a persistent Internet connection. You were either in or you were buying an aged Xbox 360 instead. Nobody initially had the choice to refuse the Kinect, which was mandatory at the time and even shipped with the console at launch. Microsoft constructed a new system meant for their existing customers but didn’t ask their customers if this was what they really wanted. Worse, their communication of it was catastrophically messy, with multiple Microsoft executives simply saying that “more information” about used game policies or family sharing would be available “soon.”


3. Repairing the damage takes a long time

Just like New Coke’s reversal, Microsoft has 2013 and 2014 backpedaling harder than a marriage proposal made while drunk. After Major Nelson stated that the Xbox One online check-in functionality couldn’t just be patched out, it was patched out. The Kinect, originally touted as something that would be required to be connected to the Xbox One in all cases, was made optional. Now in 2014, the Kinect has been unbundled from the Xbox One and Microsoft has shuttered its internal TV division. Microsoft has been trying to refocus on games and emphasizing a ‘player-first’ approach.

While Microsoft seems primed to emerge as the console winner this holiday season, overall sales data indicates that the PS4 has been trouncing the Xbox One from the beginning. The goodwill and success of the Xbox 360 burned up in the span of a few months with the Xbox One unveiling and at E3, and Microsoft is in the process of slowly earning it all back.

So, especially in the case of Microsoft, what have we learned? Hopefully (and Spencer seems to understand this) the lesson is to not take your most passionate fans for granted. Customers aren’t like trinkets that you acquire, where you retain them indefinitely and then move on to future prospects. Microsoft was fooling itself if it expected gamers to actually be excited about this TV-centric approach of the Xbox One in the same way that Coca-Cola was fooling itself if it expected the furious and outraged Coke Classic fans to suddenly adapt to the new flavor. Just as importantly, remember that the consequences for this alienation will be felt for years to come, even if you financially rebound.

In short, when your fans love you, they show it. When they hate you, they really show it.