How did this happen? Well for starters Sony should never have launched the PS3 at such a high price point, 500/600 bucks, that definitely hurt their brand. The launch games were not that stellar, and people lost interest real quick. Other than Uncharted and GT5 there weren't many big blockbuster Sony exclusive hits on PS3. The Gran Turismo games (their best system sellers) were few and far in between. Sony lost a lot of exclusivity to many of its best third party games that helped drive PS1, PS2, and PS3 sales like GTA, Devil May Cry, Tomb Raider, Resident Evil, Crash, Spyro, Final Fantasy, Tekken, Virtua Fighter, Ace Combat, Assassins Creed, Metal Gear Solid, and more. Putting the Cell processors in the PS3 was also a big mistake, and it made games harder and more expensive to produce on PS3. And as a result many third party games simply looked better on Xbox 360. Blu Ray has not generated the same kind of excitement for the PS3 like the DVD player did for the PS2. Sony has lost touch with its casual audience that were so profound during the PS1 era with Crash Bandicoot and Spyro. Littlebigplanet has not lived up to the same standard. The PSN hacking debacle really hurt them, and probably defected customers to Xbox Live. Sony really has been playing it too safe when it comes to innovation, and trying to copy the Wii Mote with Playstation Move made them look desperate and out of ideas. And the PS controller could use an overhaul since it's basically the same damn controller since the 90s. Also, the console itself is weird looking and unsexy like the PS2. The PS3 Slim and Super Slim did not help, and looked like a step backwards in design.
Are there any other important factors I forgot about? I could probably give hundreds of reasons but i'd be here all night.
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