When his fourth Xbox 360 video game console died in April, Chris Szarek wasn’t surprised.

The Chicopee, Mass. gamer was accustomed to the hardware failures that became known throughout the Internet as RROD, or the “red rings of death” which flash when the console becomes inoperable.

A 40-year-old photographer, Szarek was a hardcore Microsoft fan who spent more than $1,000 on his games. But each time one of his Xbox 360 consoles failed, he had to spend time convincing Microsoft’s tech support that they should send him a new console. Each time he got a refurbished console as a replacement (a machine that had been returned to a repair center in Texas, fixed as much as possible, and then shipped back out). When he complained on the Internet and to the media about the shoddy product and poor customer service, people branded him a cry baby and wrote him off as a statistical anomaly. But by the spring of 2008, Szarek was vindicated. There were at least a million or two other people like him.

Szarek’s fourth machine lasted almost two years, experiencing the same short life that many other Xbox 360s suffered. Microsoft replaced these machines for free under the warranty that it announced on July 5, 2007, for defective Xbox 360s exhibiting what it more politely called the “three flashing red lights.” That warranty program cost Microsoft up to $1.15 billion, but the loss of face and loyalty among gamers in the fierce console war with Nintendo and Sony has been immeasurable. Szarek, who became a spokesman for dispossessed defective Xbox 360 owners, played a part in making Microsoft acknowledge its console quality problem.

This is the unauthorized tale of how Microsoft lost its chance to become the leader in the biggest market it has attacked beyond its twin monopolies in Office and Windows software. Rival game console maker Nintendo out-thought the larger players Microsoft and Sony by designing the Wii game console with a clever, intuitive game controller. Even so, Microsoft could have captured more gamers during this product generation, yet the RROD problem held it back. The Xbox 360’s defect problem will go down as one of the worst snafus in consumer electronics history.

Its own worst enemy

Microsoft knew it had flawed machines, but it did not delay its launch because it believed the quality problems would subside over time. With each new machine, the company figured it would ride the “learning curve,” or continuously improve its production. Even though Microsoft’s leaders knew their quality wasn’t top notch, they did not ensure that resources were in place to handle returns and quickly debug bad consoles. There were plenty of warning signs, but the company chose to ignore them. The different parts of the business weren’t aligned.

It reminds me of the German war machine just before World War I, as chronicled by Barbara Tuchman in the classic history book, “The Guns of August.” The German generals were intent on keeping their trains on time; but the leaders overlooked their chances for stopping the war altogether. The Schlieffen plan called for them to strike first. Once the Russians and French mobilized, the Germans had to move into action. They marched off blindly into tragedy.

Likewise, Microsoft’s strategy depended on beating its rivals to market. It couldn’t afford to stop and delay the launch in order to solve its quality problems, or so upper management believed. What Microsoft’s leaders didn’t realize was that getting to market first with a flawed machine would only win them a battle; and it risked the loss of the war.

“They got enamored with the idea of the Microsoft army rolling everything out at the same time,” said one knowledgeable source who asked not to be identified.

The quality problem negated much of the advantage