The big thing that people forget: MS has already shipped 44% of what the first Xbox did.

 MS has a strategy. In Japan, it's a crappy one. However, MS has always had a 3-system goal in mind. The Xbox started, and gained MS atleast a good part of the maketshare. The 360 will make the Xbox brand profitable (via MS owning patents to the hardware), and the next one will capture the marketshare.

Think about this: MS could of easily taken the marketshare at any point upto now. One price drop mid last year would of killed any sort of sliver of hope Sony had. However, they didn't. They decided to keep it pricey, and lower costs first. Why? See how many people would buy the system. MS has to play the waters before they jump in.

Mark my words: when MS launches a new system (in 2011 or so), it will capture a large part of the marketshare, and will easily sell 75m systems or more. How? Since MS now knows how to make a console cheap, and what to expect of it's suppliers, it will most likely launch the 3rd Xbox at a much more favorable market price ($200 core, $300 prem, ect), and really push it, as unlike the current 360, it will have all of the great support the 360 enjoys 2 years into it's lifecycle at the begining.

Sony went into the console business, gave consumers a choice, and suddenly went to #1. Nintendo had a share near the start (game & watch) and built an empire over years. MS knows that in such a multi-faceted marketplace with $12b a year in sales, that you can't, by any means, build rome in a day anymore. They are competing against a Playstation brand that was huge, and is now nothing, and a resurging Wii. They need to build a name and some sort of respect before they do everything.

Japan will be a huge factor in this. Expect Japan to become a decent area for the Xbox franchise next cycle. I expect Japan to sell atleast 6-7m next Xboxes over it's lifespan. Why? The 360 should end with about 150%-200% over what the first Xbox had.

I'll conceide that they might put some serious R&D into the next Zune, but the current model, with such small sales, can't drain more than $20 million per quarter (speculation: $100 loss per unit with 200k units sold). I won't comment on Microsoft's "visions" for the living room though. If it's not parlayed on Windows it most likely won't be a success. That is their history.

There is (likely) tons of R&D going on in that division between the Zune, XBox 360 (elite and manufacturing cost reduction), Next Generation XBox, possibly handheld XBox, and other products; their #1 selling product (XBox 360) also shipped less probably because they were trying to eliminate as much excess inventory prior to introducing the less expensive (to produce) 65nm XBox 360.

Well that's obviously your hope. But 360 has been a pretty good success and is set up awesomely here in the states.

 The only question in my mind on 360 isn't that it'll beat the PS3, that war is over. But if it'll beat the Wii in the long term, which my suspiscion says "yes". 

Wow good post man. I guess my main question is, why the livingroom? Are they just trying to force Sony out of the livingroom so microsoft can run the technological show in there? You said they are doing it "just in case." LOL. You're probably right, but I couldn't imagine spending that many billions on a "just in case." Then again I don't have 35 billion lying around.

Yeah, and no doubt the cost of repairing all those broken 360s is listed under a completely different part of their balance sheet.

That must be a tidy sum... 

the cost of repairing arent that high. broken consoles is just hyped., and so it is max 100% :P