When Microsoft announced it was developing a video game console, the industry was skeptical. In the '90s, Microsoft was known for its software, not its hardware business.
But there's one market where Xbox hasn't been a hit with consumers — Japan.
When Microsoft released the Xbox in 2001 in the United States, Japan was the gaming juggernaut of the world. It was home to the three big console makers, Nintendo, Sega and Sony, and had the best developers.
Microsoft faced three big challenges launching Xbox in Japan. It had to convince Japanese developers to make games for Xbox, overcome consumers' skepticism about the first edition's bulky design, and make up for lost sales from launching after the holiday period.
Today, Microsoft still struggles to sell consoles in Japan. Of the 46.9 million Xbox Ones sold worldwide through the second quarter of 2019, just 0.3% of them have been in Japan, according to the International Data Corporation.
While Japan is a big market for video games, Dean Takahashi, the lead writer for GamesBeat at VentureBeat, said Microsoft doesn't rely on Japanese consumers.
"Japan is still a problem, but they don't actually need it to make billions of dollars," Takahashi said.
In a statement to CNBC, Microsoft said Japan is an important part of its global gaming community.
"We're committed to bringing innovative and homegrown content from Japan's leading game creators to a global audience," said Phil Spencer, Microsoft's executive vice president of gaming, in a statement.
While Japanese consumers prefer Sony's PlayStation or Nintendo's Switch, Microsoft's relationship with its Japanese competitors is changing. Watch this video to learn more about how Microsoft is working with Sony on the future of video gaming.