let's all hope that neither ms nor sony are going to dominate next-gen - competition is the only thing that drives companies further.

First bolded: That's not the point.

1) Microsoft can afford a loss leading model. Sony not so much

2) Microsoft's gaming division is making more profit than Sony's

You say Microsoft can't undercut Sony because they want profits. But Sony needs the profit more desperately while Microsoft's plan is to make the Xbox the center of your living room and spreading Windows. Microsoft doesn't care if they lose money at first - they have a long term goal (a long term goal I don't like and don't want to support but they have one). Sony on the other hand lost money on the PS3, is just about breaking even right now, is losing money on the Vita (or at least not making a lot of money on it) and can't afford to subsidize the PS4 for the first 3 years.

Second bolded: You just proved my point. The bigger company can outspend the smaller one. Sony could outspend Nintendo with the PSX and the PS2. Microsoft could outspend Nintendo with the first Xbox. Nintendo could outspend Sega with the SNES. The Wii is a perfect example for what I said because it was a disruptive product and disruptive products do not compete in a head to head fight so the bigger company doesn't win. The PSP was outsold by the DS because it was a blue ocean product - blue ocean strategy says: "The bigger company wins. Don't compete for that red ocean, go look for new customers because you won't win head to head". Why did analysts expect the PSP to sell better than the DS? Because Sony is the bigger company and could outspend Nintendo in a head to head fight. Again, proving my point (Nintendo adopted new strategies for Wii and DS because they knew what I just said is right - in direct competition the bigger company wins). And why did analysts expect the PS3 to outsell the Wii? Because analysts didn't get the disruptive nature of the Wii and Sony was the bigger company. In fact there were even analyses back then saying "Sony and Microsoft can outspend Nintendo, therefore Nintendo should go third party as they have no chance in competition".

What I said is: Sony can't compete in a head to head battle with Microsoft. They can compete (and will win against) Nintendo which is why the Wii U was such a braindead idea to begin with - Nintendo wants it to compete with Microsoft and Sony for the hardcore gamers. That means direct competition --> Microsoft and Sony have an advantage because they are bigger.

My point is: Microsoft has more money. Microsoft is willing to lose more money because they can afford it and want to spread Windows and its services. You said: People buy what's cheaper. Exactly. And Microsft can and is willing to offer the same product for a cheaper price because of the things I just mentioned. Just to be clear: I don't like that and I don't want Microsoft to try to take over the living room. In fact, I think there is a reasonable chance Microsoft will fail with the next Xbox because instead of pushing it as a games machine they'll push it as a multimedia center that also plays games which will lead them to lose the fight. But in direct competition Microsoft has an advantage over Sony because it is bigger.

The amount of money Microsoft has is frightening actually.

They post $20+ billion in net profits a year without much fuss. That's more than Sony has made probably in the last 10 years combined.

They bought Skype for $8 billion dollars and didn't even blink, if the XBox division needs to lose some money for 2-3 years, I don't think it's really out of the question for MS at all if they view it in their best interests to take control of the living room, especially before Apple TV comes. 

Sony is just a bug on their windshield as far as their overall corporate strategy is concerned. Microsoft's really competetion is Apple and Google. 

hopefully Microsoft thinks this way and doesn't focus on games, losing the core.  Microsoft has always been the biggest company of the 3 and they will end up 3rd this gen despite being a lot less expensive.  Also why does everyone associate MS with being "the center of the living room"?  Sony has the blu-ray and DVD playing consoles last I checked that have all the same apps.  MS can throw money at it all they want but if people are more interested in Sony's IPs and free online (as is evidenced by the fact that PS3 has outsold 360 despite always being more expensive) then Sony will be fine.  I'm hoping Nintendo has some great IP this Fall too.

Blue ocean really has nothing to do with a smaller company not being able to compete in a red ocean. Its not a case of small vs big. Apples iTunes and Sony's Walkman were both blue ocean strategic moves. Its not simply about evading competition.  But back to Microsoft. Microsoft was a bigger company than Sony when the xbox1/ps2 came out, they were both red ocean. The ps2 won. After a certain time people will want return on investment, Microsoft has been waiting more than a decade for it. Just because they have more money to spend doesn't mean they'll sell their console at a loss forever. The Xbox is still billions in the red, they haven't earned their money back from the Xbox and 360, and losing more money from gaming is the last thing MS needs right now. They have Windows 8, Windows RT and smartphones to worry about, both are disappointing in sales.

Sony will not overprice the PS4, and neither will they launch it later than the 720. They learned their mistake from the ps3. My personal opinion is that the next xbox has a weak chance against the ps4 in a head to head battle.

Sony shouldn't try to go the "Release it at insane price for "Hardcore" then drop for "Casual" later on!" route again. It would have a big affect on sales for them and they don't need that. (Because of their current financials. Nintendo could make it through this rough spot because they aren't in the red as much as Sony is.)
The PS4 will need to be a Marathon runner. (Yeah, that's from Jay's thread. ) It will need to sell well at the beginning but it can't drop off like the Wii did.
Games and price are crucial. As always.

In effect Blue Ocean strategy is used by smaller companies to avoid competition with bigger ones. Bigger companies don't care about red oceans as much. And yes, yes it is about avoiding competition. That's the basic premise of the strategy: avoiding competition by finding new markets.

All the stuff you said is valid but it also goes for Sony. Microsoft wants profits but Sony wants them just as much and needs them more. Again in a head to head battle the bigger company is at an advantage. The point with the original Xbox is invalid. Microsoft could only buy itself into the market because it was able to lose 4 billion dollars - what companies can afford to lose 4 billion dollars? big companies... And don't say "but Sony was a newcomer as well" because you can't compare those situations - Sega and Nintendo made huge mistakes back then which made it possble for Sony to become the market leader at the first try. Also, back in 2000 Sony was way stronger than it is right now.

In any case what I said is merely business 1-0-1. If you think a behemoth like Microsoft will let Sony "dominate" them without fighting (and that's basically what you said)... well, you're free to think what you want of course. But what happened during this generation was the exact opposite: Microsoft was willing to shell out more money through the board and that won't change next gen. What you're saying is the healthy company will want to save money but the one in a dire financial situation won't. That's crazy. If Microsoft has the chance to become market leader by shelling out more money they'll gladly do so.

Sony was way stronger in 2000 than now indeed, but so was Microsoft way more stronger than Sony ever was. They both competed head to head, MS being the bigger company lost. Sony won't dominate next gen, I was being sensational, but they'll gain or lead the global market. Microsofts fundementals are at stake, pc makers feel the heat of tablets. All of those companies sell less pcs except for Lenovo. Intels revenues are going down. Tablets will overtake laptops this year. Microsoft will toss more money at the tablet market than they will on Xbox. We're moving into the post pc era and Microsoft is slowly becoming irrelevant.

Yeah but Microsoft never really had a chance to win as they were two years too late and Sony had the support locked. I said the bigger company has an advantage (and it has, you can't deny that) not that it always wins under any circumstance

Let's just wait and see haha I'd rather have Sony winning but we'll see.

At leas this time you guys are trying to cut down the quote trees!