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S.T.A.G.E. said:
The 360 isn't losing it's appeal. Microsoft never expected the 360 make it as far as it has gone. They played their cards right this gen despite RROD, but besides that they are worthy of some sort of applause for keeping the gaming alive until Sony got their act together. Now we can enjoy great games on both systems. Microsoft's job isn't to constantly hold peoples attention, it's job is to survive having less worldwide demand than anything Sony puts out. It has done a great job of staying in peoples hearts and minds good or bad.

I would say it is to some degree.

Especially LIVE. At the start of this gen Sony launched a very incomplete and sub-standard online system. Over time things have vastly improved, up to the point now that we have threads arguing over which system is the superior. LIVE stands as one, if not the key selling point for MS's system, they've said so all along. If gamers are now questioning the value of their key selling point, with the competitor offering a similiar service free of charge, consumers desire and appeal for the system will lessen.

I'm not sure about MS expecting the 360 not to make it this far. Their gameplan with the original Xbox was to quash Sony, and although they failed in that regard, they entered this gen at full sprint, their second chance, launching early and organising plenty of exclusives. I believe it's MS's vision statement to reach the top of this industry.