It depends on what you think "the ball" means, and what game that ball is used to play. It's pretty clear, based on this post, that you think the game is marketshare: based on several quotations including one in a post a few above yours, it's clear that Sony isn't playing that game anymore. They're playing the "actually make a profit" game now.

So even if Microsoft were to push for more marketshare, it's a game they'd be playing alone, which isn't very fun. It seems to me that pushing for profitability over marketshare is the right thing to do at this point, and it looks to me like Microsoft and Sony will both be slowing down price cuts and other cost-heavy decisions -- at the expense of marketshare, to the benefit of profits. 

I'm betting-on/hoping-for option 2, as well.  I predict that this fall will mark a significant change in the 360 line in price, construction, and reliability.

heh, people here talk as if everything is written on stone or something.

==> it was completely true for MS BEFORE their large price cut/offer/moneyback offer in Europe.

For memory, if you combine all the offers (including the new bundle 15/05/08) :

1 arcade model + 2 controller + Halo3+ PGR4 + GTA4 = 205 euros which is quite amazing.

The 'ball' is in Nintendo's court right now. Both MS and Sony have equal (if differening) problems to solve throughout the rest of this gen and into the next IMHO.

Sony...

has profitability problems. It pushed costs up on PS3 with BR and lost a year to MS in time to market. Worse, Nintendo has taken (at least for the moment) the position Sony had with PS1 and 2 - namely the console for everyone market perception.

Their library of games right now is too skewed towards 360 demographic and it does not have enough broad genre coverage, enough compelling family and childrens titles, nor enough 3rd part support.

It is caught up in a big battle beyond games for HD movies, download movies, on-demand, etc. with MS and others and has been spread thin over PSN evolution and Home by the sound of things.

So, they need to focus more short/medium term and forget marketshare as Wii is way ahead right now anyway. That means sort out games and get broader genre support. Sort out Home and LBP and get them to market. Get production costs down on the PS3 as fast as possible.

They still have good brand, they have a lot of IP overall (Jak & Daxter, Sly Cooper, etc) and a lot of 1st and 2nd party support. Plus 3rd party support for big titles is now assured thanks to COD4, AC, GTA IV, DMC4, etc. etc.

If they get this right over next 18 months they can look to growing marketshare again. They also know thanks to Wii that better tech/graphics isn't everything. Comparing PS3 to Wii its easy to image PS3 lasting 10 years with some evolution of console over that time (PS3 slim, etc). Looking at Nintendo history their next console will likely only been on a par or slightly ahead of PS3 tech anyway from graphics point of view (Nintendo never chasing high end graphics as an end in itself anyway).

I think they could take small price cuts, but anything more would just needlessly harm profitability IMO. PS3 is selling at least as well as 360 with less games and less time in market - they have time to take bigger price cuts later so long as 360 stays where it is currently, which brings us to...

MS & 360...

Is probably barely profitable in its own right (its hard to be sure with it buried in the entertainment division but if we take historic Sony/Nintendo performance and factor in the videogame industry has never been larger then MS are at best right at the start of seeing profits at this stage.

MS, despite gains made by 360, I think have serious marketshare problems if their goal is to be number 1 console worldwide either this gen or next.

Starting with Xbox MS have consitently focused on being bigger, more powerful and faster - qualities which have never made any console sell in excess of 100M units worldwide. They might rein back with their next console, but what about their core demographic? I think the major 360 fans will want (and expect) the next console to really push the envelope as well.

In short, I think MS is caught in a loop where they have got a very strong, big spending demographic in US & UK that would probably have formerly looked to PCs for their games, and will struggle to get out of that loop. It's a classic catch 22. They are so good at Live and PC like games such as Halo, GoW, etc. with big online community that I believe they run the risk of losing that very demographic as they try and gain broader acceptance.

Their very comments about owners of Wii wanting to 'graduate' to a 360 wanting a more 'immersive experience' indicate to me they don't really get videogaming outside of their core competancy.

They seem to think all these Wii owners are 5 to 14 and when they hit 15 they're going to want a 360. In some cases I'm sure that's correct, but I doubt its true of the bigger picture.

Looking at Wii sales and combined 360/PS3 sales to date I have to wonder at what real future growth 360 can show. It has increased YOY so there is more water in the well, but its YOY increases are behind Sony and Nintendo and current trends indicate to me that WW the 360 is still likely to end up 3rd - although perhaps a more profitable third place than Sony will enjoy in 2nd.

They have a great base demographic that I think they could turn into a very profitable business - but their big challenge (and one I think they're actually failing at right now IMHO) is appealing beyond their current core gamers.

If MS can't change current trends (and I doubt games are enough anymore) I think they may have to risk price cuts sooner rather than later. Otherwise they must settle for what they've achieved this gen and look to the next. The risk is that doing so might well give Sony the time to really fight back well, get back into a strong 2nd place and leave MS as a profitable but last place competitor vs its Japanese rivals.

In summary, I think the balance of power right now is actually Nintendo, Sony and MS last. This might seem harsh, but based on the above I think MS actually has the most difficult job to really grow 360 and continue to hold of Sony WW.

I wasn't aware that sony was in the produce business, I thought they were mostly in the consumer electronics business. I'll look for sony cucumbers the next time I'm at the grocery store.

Of course MS is not in this for fun, they are in this to win. MS's goal, from the outset, was to put themselves in a position to compete successfully - if not dominate - what they and Sony believe will be a single set-box entertainmemt unit. They were prepared to lose billions for several years because they believed that this money would be made back in the long term. Thus for them, marketshare is what matters (and in this case, Wii is a short term thorn in their side, as, long term, Nintendo has no interest in that single-unit system). The larger user base they get this generation, the better able they will be to increase their market share next generation, and then the generation after that. This is not a new strategy for MS - dominate the market at any cost, drive out or marginalize the competition, then reap the rewards down the road.

The big difference between Sony and MS at this point is that MS makes a profit despite it's entertainment division (though that has been in the green for the last two quarters), while for the last several years it was Sony's gaming division that was helping keep the company afloat, so it's collapse has negatively impacted the whole company. So MS can afford to lower their profits a little in order to increase market share, while Sony cannot (or not so readily).

Also, you are portraying a very simplistic view of marketshare vs profit. The two are clearly entwined, and no one is suggesting a mindless dash one way or the other. Obviously MS can't profit if no one owns the system, and they can't profit if they give the system away to everyone. A lowered console price now would help boost sales of both consoles and games, especially since new owners can pick from a large library of awesome 360 games at reduced prices.

This is a great thread (once people stopped interpreting "throw in the towel.")

From a business POV, I'm glad Sony is pulling back and trying to gain profit instead of burning its funds.

The console industry has always been about software profits, not hardware. The hardware gets cheaper, and then the console manufacturers cut the price -- because they want more owners of the units to buy more software, which is where they make the good $$.

Sony is pretty near break even with the current 40 GB models, and MS still spends a huge portion of their profits on replacement 360s, which conveniently doesn't show up in gross sales #s. Neither company is "giving up" or any such thing.

As consoles evolve to be more complicated, so does the software process, and the time needed to make a AAA title also increases. You can't expect the PS3 to have its first AAA title lineup nearly out-the-door yet, like they did at this time in the PS2's lifetime. I'm surprised they have as many 1st-party games out as they do.

Nintendo has been the true champion of this early phase of the modern console war (which I predict will last *much* longer, per generation, than previously), but Sony and MS are certainly not in the "bail out before its too late" position -- far from. I think there's a good chance all three companies could turn a profit this year, and rinse, repeat, from here on out until the next generation arrives.