Entire console division came as part of a battle to ensure the rival kept out of PC market.
Microsoft's entire console business was founded as a response to Sony developing the PlayStation and rebuffing a partnership with the Windows-maker.
According to former Microsoft 20-year veteran Joachim Kempin, one-time VP of Windows Sales, Bill Gates was so worried that Sony could develop its console into a living room-based PC rival that he felt obligated to competed.
"The main reason was to stop Sony. You see, Sony and Microsoft…they never had a very friendly relationship, okay? And this wasn’t because Microsoft didn’t want that," the former executive told IGN.
Kempin's account of the two companies' history is that Microsoft made advances to partner up with Sony buy these were rebuffed by the Japanese giant.
He continued: "As soon as they came out with a video console, Microsoft just looked at that and said 'well, we have to beat them, so let’s do our own.'"
Apparently this directive came straight from the top, with Gates directly influencing the first few steps of Xbox development.
However, it was far from smooth sailing, as the former executive told how the company struggled with the harsh reality that most console makers sell their devices at a loss.
"Sony could not make money on that hardware model, ever. So they supplemented it with software royalties, and Microsoft copied that model," he explained.