I disagree. The PS3 is a distant third. MS' main goal with Xbox was to keep Sony in check. Now the Wii has actually helped them, so MS itself doesn't have to be number one in any gen, as long as Sony is third.

I don't remember the argument from the top of my head, but MS strategy against Sony had something to do with the battle of the living room, right? Can someone enlighten me on this please?

It's not easy to both have the hardcore market (machine needs to be high end, and therefor expensive) and tons of casual players (need cheap machine and a different type of image around the product). I believe MS is satisfied by coming 2nd in this gen. Wii will be twice as big as the X360, but Wii ain't no threat to MS longterm plans about being the media center of the living room and having millions of people connected to an online service that offers more than just games.

Wii will reach 100 million by end of gen.
X360 will have 50 million
Sony 45 mill.

MS will be satisfied with those numbers, and the strategy for the Xbox3 will be to conquer Europe and thereby enlarge it's target demographic. Japan hardly has any importance any more because of the total Nintendomination, plus nowadays Japan is a quite small gaming market anyway - it's share of the total WW market for next-gen hardware is only 16% (while NA has 50% and Others has 34%).

It all boils down to:

MS said:
-we had higher revenues for 2007 than either other console if you add everything together.
-we still have a higher LTD number of consoles.
-we still sell more consoles than sony.
-we have had better third party game sales in 2007.
-these games sold more for 360 than PS3.
-Xbox live stuff.

Nintendo said:
-we sold this mant DS and this many Wii units in 2007, placing 1st and 2nd in US.
-we sold out of all our hardware and some software/accessories by the end of 2007.
-our hardware accounts for over half of all hardware sales for 2007.
-This is the LTD of Wii and DS in USA.
-these games have had this many sales in 2007.
-we dominate in handheld software.
-we are mostly responsible for video games growth over last year.

Sony said:
-we sold this many PS3 in December, it was the best month yet.
-we have these games coming which people should be enthusiastic about.
-we sold this many PSP in December, it was a much better month than November.
-we have these games/features coming which people should be excited about.
-PS2 has lots of games, and sold this much in December.
-The playstation family hardware revenue for december was this, it was higher than xbox or nintendo.
-PS2 GHII did well
-we had a total software revenue for december of this.

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MS basically kept to 2007 revenue, still having an LTD lead, and selling more than Sony.

Nintendo kept to 2007 hardware, and software.

Sony kept to December hardware, increases over previous months, plus total PS revenue for hardware and software.