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In a very bad place. I imagine every game would be more expensive and with more expensive DLC. Japanese gaming would've have completely crashed and/or in part have gone to Nintendo. Microsoft would be making little effort in the first party camp and we would be beeing force fed kinects. Games would all require a permanent internet connection. Millions would just never adopt the new system.

So... yeah... in a worse place. Microsoft is very abusive when they find themselves in a monopoly like situation.