Well we now have the official specs for PS4 and for a console they are fantastic.  A nearly 2 TF GPU, 8 GB of GDDR5 RAM, andntons of other tech lies under the hood.  With optomized game engines and it being a closed system games will look absolutely stunning.  All anyone has to do is look at how gorgeous Killzone Shadowfall is and that's a launch title!

Now currently MS specs are rumored to be quite a bit weaker than the official PS4 specs.  MS prided itself this generation in mult platform titles often looking and performing the best on the 360 but that may not be the case if its weaker than PS4.

So how will MS respond?  Are the rumors old?  Do they not care and want to launch a less expensive console?  Will they dosomething drastic and change hardware? 

No idea, but i'm eager to find out.

I really don't think they care. They were more powerful with Xbox and they got destroyed. PS3 and 360 were more powerful than Wii and got beaten. PSP and Vita were more powerful than DS and 3DS respectively. Hopefully they're smarter than to not see that trend.

Making good games.

Think it will depend a lot on whether they decide to put kinect in every box or not

I think M$ is in a losing situation here

They could match the specs of PS4 and launch at the same price as PS4 but it will get outsold hard by the PS4

or they could just roll with the weaker and cheaper console and mainly focus on Kinect like the rumors suggested so they could stay on par with the sales

They might even try to outdue the PS4 while launching at a higher price

Edit: I think they will keep Kinect as their main focus

I honestly don't think Microsoft cares. I don't even think they care about games anymore. This next box will most likely be made to run Windows 8, everything else is just extra.

Ignoring the ignorance from some posts here, NextBox specs will be very similiar to PS4.

Maybe some minor changes in the design/features, but they will continue with their plans.
For example I think the rumour than Sony increased the ram to 8GB to match that's of the leaked
nextbox specs maybe true.
Sony's vision was an interesting one and I'm excited to see what MS will bring to the table.