The big reason they did so well last gen is because the PS3 was $200 more expensive than the 360 and the PS3 had such complicated HW that it took devs awhile to get used to it, resulting in inferior multiplats for the first year or so. Scarlett will be going against a PS5 with most likely the same price and possibly a little more power, which will be on display at launch.

If MS launched this year, they may have been able to drop the price by $50 in time for the PS5's launch, but there would have been a much larger power difference. In that scenario, there is no question that Scarlett would have fared much worse than the XBO.

As others have said, it's not quite analogous to PS3 vs 360; a lot of 360's gains came from Sony's disastrous missteps with the PS3, MS cannot rely on Sony being that foolish again with PS5. If Scarlet came out this year, then Sony followed with a significantly more capable PS5 next year, Xbox would most likely get steamrolled. For Scarlet to have a fighting chance they need to be both price and power competitive, that's not gonna happen if they go a year early.

You both are reading the generation 7 wrong.  PS3 flopped because it was too powerful.  That is the main reason.  Power is a disadvantage because it goes hand in hand with a higher price.  XBox360 and PS3 had mostly the same games, but XBox360 was cheaper.  That made it the dominant platform in the US and UK.

The worst thing Sony can do is make PS5 more powerful than Scarlett, because that will drive up the price.  Even if it costs $50 more, it will be a repeat of generation 7.  Given it won't help Microsoft in non-English speaking countries, but the US and UK are ready to go for Microsoft again if given a decent reason like a cheaper price.

Not true; PS3 really wasn't that much more powerful than the 360, it was even weaker in some ways. It was expensive cos it used a ridiculous over-engineered custom chipset and a Blu-Ray player.

PS4 was cheaper than the Xbone yet it was more powerful. PS5 could exceed Scarlet's power at the same price launching a year later.

PS3 was more powerful than the 360.  I am including the Blu-Ray drive in that, since a Blu-Ray disc has significantly more capacity than a XB360 disc.  Overall the specs on the PS3 were clearly better (disc drive, clock speed, hard drive, etc...), but that drove up the price.

PS4 also proves my point, because the PS4 launched at a cheaper price and it trounced on the XB1.  Price matters a lot.  Price matters so much that it also makes power a disadvantage.  All other things being equal the weaker console has an advantage over a more powerful one.  Of course an expensive peripheral like Kinect can totally destroy that advantage, but that doesn't change the fact that having the weaker console is an advantage.  This is especially true when comparing Sony and Microsoft consoles, because they get mostly the same games.  In the end a lot of people just buy the cheaper console, and the easiest way to be cheaper is to be weaker.

PS3 was more powerful than the 360.  I am including the Blu-Ray drive in that, since a Blu-Ray disc has significantly more capacity than a XB360 disc.  Overall the specs on the PS3 were clearly better (disc drive, clock speed, hard drive, etc...), but that drove up the price.

PS4 also proves my point, because the PS4 launched at a cheaper price and it trounced on the XB1.  Price matters a lot.  Price matters so much that it also makes power a disadvantage.  All other things being equal the weaker console has an advantage over a more powerful one.  Of course an expensive peripheral like Kinect can totally destroy that advantage, but that doesn't change the fact that having the weaker console is an advantage.  This is especially true when comparing Sony and Microsoft consoles, because they get mostly the same games.  In the end a lot of people just buy the cheaper console, and the easiest way to be cheaper is to be weaker.

360 outperforms PS3 in several areas, such as available RAM, fillrate, and bandwidth. It's a marketing myth that PS3 was far more powerful. It's price was due to using exotic rather than standardized parts.

If MS came out this year with a $500 Scarlet, Sony would just come out with a more powerful $500 PS5 next year, and from then on Scarlet would be crushed.

No, because if Sony can make a more powerful $500 console a year later, then Microsoft could just drop the price on theirs.  Then it would be a $400(ish) console vs. a $500 console that plays the same games.  The $400 console would crush the $500 one.  (At least in English speaking countries, which is where Microsoft actually has an appeal.)

Let me put it this way.  There are a lot of people out there who think Lamborghini makes really cool cars.  They are far, far cooler than any Toyota out there.  But if Lamborghini is so cool, then why doesn't everyone have one?  Lamborghini costs too much.  All of that power seems like an advantage, but it really is a disadvantage, because it drives up the price.  Lots of people buy sensible (lame) Toyotas instead, because that is what they can afford.  There are probably even some Lamborghini owners out there who can't imagine why anyone would ever get a Toyota.  And yet those lame-ass Toyotas are always going to sell a lot more than the super-cool Lamborghinis, because the Toyotas cost less.

Consoles work the same way.  Powerful consoles seem cool, but they are really putting themselves at a disadvantage.  Most people just want the cheaper console even if it is less powerful.  Also people like a console with more games on it.  So if a console launches a year earlier, then it has an extra year to build up a game library.  This is exactly what happened with the XBox360.  It had a year head start on games and it cost less than the PS3.  The XBox360 totally crushed the PS3 is the US and UK.  Extra power does not really help, because it drives up the price.

PS3 was more powerful than the 360.  I am including the Blu-Ray drive in that, since a Blu-Ray disc has significantly more capacity than a XB360 disc.  Overall the specs on the PS3 were clearly better (disc drive, clock speed, hard drive, etc...), but that drove up the price.

PS4 also proves my point, because the PS4 launched at a cheaper price and it trounced on the XB1.  Price matters a lot.  Price matters so much that it also makes power a disadvantage.  All other things being equal the weaker console has an advantage over a more powerful one.  Of course an expensive peripheral like Kinect can totally destroy that advantage, but that doesn't change the fact that having the weaker console is an advantage.  This is especially true when comparing Sony and Microsoft consoles, because they get mostly the same games.  In the end a lot of people just buy the cheaper console, and the easiest way to be cheaper is to be weaker.

What he says is mostly right because it can be demonstrated how much more price matters.

Your counter-argument comes with the problem that the Xbox One had built a very negative perception of itself before its price dropped below the PS4. It's not as simple as "lower price always wins", but price is a more important factor than power.

When you compare the sales of the PS4 with the PS4 Pro, the majority of consumers has opted for the standard PS4 since the launch of the Pro despite only a $100 difference. The power gap between the PS4 and Pro is larger than the power gap you would expect between a 2019 Scarlett and 2020 PS5, so the argument that a one year headstart would be beneficial for Microsoft holds water. By the time the PS5 launches, Microsoft could undercut Sony's console price and the market would choose Xbox, provided it isn't inherently biased against Xbox. So the USA and the UK would go to Microsoft, the rest of the world would still pick Sony despite the price difference.

This is purely hypothetical though, because Microsoft slept through too much of the PS4 generation, so a 2019 launch wasn't even feasible. You would want games to go along with the launch of a new console, but Microsoft's first party strategy has been ill-advised for too long to prepare properly for the launch of a new console. At best they could put out something like the 360 which stumbles through its first year (360 gained a headstart of only ~5.5m units on the PS3), and then hope that Sony is overconfident in the PS5 to gain more traction. Although it needs to be said that this time around Sony wouldn't need to commit PS3-level blunders, because nowadays it's established that the vast majority of games come to both PS and Xbox whereas at the time of the 360 Sony still held a tremendous advantage in exclusive third party games.