I think there may be a mindshare shift at Microsoft.

Think about what they saw in the 90s, they saw Sony getting into console gaming, and feared that that would eventually challenge the PC/Windows supremacy from the living room outward I guess. At the time Microsoft didn't have a major stake in PC gaming anyway, other than a few minor studios. They saw little chance for growth in PC gaming for whatever reason, and put all their chips on stopping Sony from challenging them from the living room scenario.

Now what has happened since then? Microsoft has been a day late and a dollar short to all of the other challenges to their empire in terms of new tech, such as smartphones, tablets, mobile apps, streaming boxes, and so on. Huge new walled garden environments rose up showering billions into Apple's coffers with the iDevice crazes. Android is growing by literally tens of thousands of new users HOURLY.

All the while PC gaming, under the strong leadership under Steam's interface domination, and the wide availability of decent broadband in the large metro areas, has seen dramatic rises in popularity, reach, and profitability. The global PC numbers for gaming revenue are now simply staggering.

Microsoft sees their error, now an obvious one. Console competition requires truly massive investments for very questionable profits, and is prone to tailspins inevitably at some point in a generation which can only be corrected by spending billions more rolling the dice on a successive generation. It's Russian Roulette for anyone working the console space, even Sony only narrowly avoided suicide by PS3 with the horrendous late launch, high price, availablility issues, low attach rate (few titles + high % of people buying them exclusively to serve as Bluray HT pieces), etc. Now it's Microsoft's turn to feel the pain with XB1.

Let's look at the XB1. Every fan and proponent likes to point at "WOW it's sold more than 360 at this point". This is a deceiving point underneath, because :

1- 360 had massive supply shortages

2- 360 had to build a wider audience from a mostly niche preceding console, the Halo fans were waiting on Halo 3, and Gears didn't exist for a while yet

3- 360 didn't truly take off for a fairly considerable amount of time after launch, it was a slow burn

X1 will inevitably track LTD lower than 360 even in the US, the writing is on the wall. But more crucially :

What do you think the X1 sales would be if they had stuck with $499, no game, mandatory Kinect? They would be totally buried right now. They've thrown everything AND the kitchen sink at X1 to get the sales up. Sales were spectacularly front-loaded on launch, then poor throughout 2014 until the holidays, then considerably buffed by stunning sales. I remember posting a thread positing that we could see a $349 X1 with bundled game(s) in mid-2014, and people thought I was crazy, Microsoft would never do ANOTHER price cut in one year. Well, we all know what happened, multiple game giveaways, $329, retailer gift-cards, trade-up programs, yadda/infinity. So a lot of the numbers we see from X1 so far are due to the pent-up launch demand (which dissipated quickly of course, even with absolutely staggering launch availability), and the 2nd holiday fire sales (against a full-launch-price opponent for all practical purposes).

X1 can compete again holiday 2015 if they have another price advantage. But that's a pretty big question. It would be basically unprecedented for Sony not to drop the price to $349 or less by no later than fall of this year. And more typically we've seen more like a move to $299. At $299, of course Microsoft would have to attack via $249 (in my mind, would result in basically a draw during Nov/Dec), or $199-$229 with big bundles (extra controller, year of live, multiple new games), which would in my estimation result in a similar margin of victory we saw for holiday 2014 favoring MS. But is that worth the cost? Either way is a nightmare scenario for the fundamental function of having a product line to begin with : to make money.

So taking all of that into account, Microsoft can't be run by people stupid enough to not realize where the threats and opportunities lie, and where the failures stand. 

Cliffs for MS :

HUGE money is possible with PC gaming if they can self-check their ego and cooperate with Steam. Simply bringing AAA titles to PC gives enormous sales potential without the ludicrous hardware R&D necessary. They could even offer a W10 'console'-style OS variant that is low overhead that could be packed into to prequalified SteamBoxes from various vendors. All of the rewards, basically none of the risks for MS.

Console hardware is just a low margin nightmare unless you play your cards very tight and make few errors.

As the future comes on, they could go to a Netflix-style high-speed game streaming service for the Xbox brand, play on all of your Windows devices the latest MS games and partner games for a monthly fee. Buy full-fledged games and DLC or MP passes on the side.

And that is my epic rant.

Can the X1 take back the US crown? Not unless they're willing to hemmorhage absolutely stupendous amounts of money for no reason at all. Even 'winning' would amount to a huge loss worldwide. They'd be far better off selling 40M total LTD this gen but turning a profit vs. selling 60M total LTD but losing 4B+ to do so (trying to hit $249 or less only 2 years in with bundled extras).

How can you draw that conclusion? 'The XB1 is a stronger brand in the US because the PS4 is only outselling it by a small margin'. That makes absolutely no sense.

Much of the PS4's near-record LTD sales were due to having the strongest launch of any system ever. But 2014 sales were far from record-breaking. It sold 4.7M in the U.S. last year. Compare that to the PS2, which sold 6.17M in 2001. But you know what? Even though the PS2 was the most dominant console in history it still got a 33%/$100 price cut 19 months after its U.S. launch, and that caused sales to grow by 40%, making it just that much more dominant. I think Sony is well aware of the effects price cuts typically have on sales, and they're well aware that sales will not grow without price cuts, and sales need to grow. The PS4 is doing well, but not well enough. Sales are at best flat from last year in NA and Europe, and they'll stay that way until it gets a price cut. If it doesn't get a price cut this year, it will fall behind the PS2 by a considerable amount. But except for the Wii, no console released in the past 26 years has gone more than two years without a price cut.

I have history on my side. The PS4 will get a price cut this year, and $50 may not be quite enough given the observed effects of price cuts. Based on monthly NPD data that I have going back to the fifth generation, initial price cuts that have provided significant, persistent boosts to sales were all at least 25% reductions or more. The 360 is the only exception, as until recently it was the only system whose initial price cut didn't boost sales significantly, and incidentally it had the smallest initical price cut percentage-wise, declining from $400 to $350 in August '07, a 12.5% reduction. The only other systems released in the past 20 years whose initial price cuts were $50 instead of $100 were Nintendo systems, and they all launched at lower prices than the competition.

Regarding the XBO growing YoY, early signs aren't encouraging. So far it's up only 8% YoY in the U.S. Of course, it's worth pointing out that the XBO had a generally strong Q1 2014, selling 711k units, more than the 603k the 360 sold in Q1 2006, thus giving the XBO one of the best first Q1s of any system in the U.S. this century. A lot of that was likely leftover demand from the launch quarter bleeding over into tax season as well as the limited edition Titanfall bundle. The XBO is now 15 months old (so no left over demand from launch) and there's no major games this quarter for the system, and those are variables that are tough to correct for.

So, the real test will be the spring quarter. XBO sales dropped off a cliff after tax season last year, selling only 115k in April last year. Overall, Q2 2013 sales for the XBO totaled 311k, which is not very good. That's less than what both the GameCube and original Xbox sold in Q2 2002. Sales did rebound after the Kinect-less SKU was introduced, with the XBO pulling 575k units in Q3. If Q2 sales this year for the XBO are up significantly over last Q2, then we can say that the price reductions have had a lasting, non-trivial effect on sales. But if sales are still only barely up, then the XBO's problems may run much deeper than we thought.

As for the XBO getting more price cuts, at most the XBO will decline by another $50 this year, or they may just do more bundles. If the PS4 gets a $100 price cut, the XBO may not be able to win Q4 unless MS drops it by $100 in November. I don't see them doing that. The soonest I see the XBO reaching $250 is November 2016.