Of course Microsoft is worried. Nintendo is too. Sony has stepped their game up.

Sony is going to bring out a Console that is easy for Developers to work on. Something Developers really want. A Console that has one main purpose... playing games. Something gamers want. And a Console that "spec wise" is better than what Microsoft or Nintendo will be offering.

Why would they not be worried

Prior to the PS4 reveal, my three biggest concerns for Sony's next console were the timing of the release, developer support, and initial price, because all three were tremendous factors behind Sony's slow start.

With Microsoft releasing the 360 a year earlier, it had a head start in establishing and expanding its user base, and in turn, cutting into the PS3's potential user base. However, it seems like Microsoft will not have that head start (unless there are delays), so the resulting launch of each console may be very different from this past generation.

Secondly, the PS3 suffered from a lack of games during its first couple of years, before successfully rebounding with its library. With the recent reveal, Sony has stressed that it has reached out to developers in order to make a console that would be easy to develop for. This in turn has the potential of making the PS4 more successful than the PS3 was during its initial years (although we'll have to wait and see).

Finally, the PS3's huge $600 price tag was another major factor behind it's slow start, and this card has yet to be revealed by Sony. The tech behind the PS4 seems to suggest a heftier price tag than the Wii U, but for all we know, Sony may be looking into some form of subsidization (through their Gaikai services).

In summary, two of the advantages Microsoft had in the previous generation (earlier release and developer support) do not seem to be there for them in the upcoming generation, with only price still anyone's guess. Regardless, I do not think that Microsoft is worried, but I wouldn't be surprised if they were caught a bit off-guard with some of Sony's reveals. It will be interesting to see how Microsoft differentiates itself from Sony in the coming months, and as someone who has had to go through three 360s, I am hoping that Microsoft makes it a point to reassure early adopters that their hardware has a low failure rate (Sony addressed one of their big mistakes in the previous generation with the difficulty of development for their system, and I hope Microsoft addresses its mistakes with the 360 as well).

Ms headstart did not much, their first year was their worst year in sales. When PS3 released the X360 started to sell well.

I've felt that way since the reveal was announced and feel that way even more so after it.  Also that it was done mostly for stockholders to have something to feel confident about since the last quarterly financials were so disappointing.

Now I'm not gonna sit here and say that the next Xbox will blow away the PS4 or anything premature like that.  The PS4 didn't near have a bad showing and Sony obviously has plenty of support behind them to be a formidable opponent.  MS CANNOT be overconfident as NOTHING is guaranteed for anyone this gen.  Consoles are fighting for relevancy in this smartphone/tablet gaming world, particularly with the media.

If their reveal is not coming until May or something, though, they really have an opportunity to put together a nice reaction to the PS4 reveal.  There's a lot to learn from it for sure.

The Money part means nothing to me, but How can MS stop either Apple or Google when they decide to occupy the living room? 

The next Xbox should be an amazing device, sadly it wont be first or second in the living room.

This next gen goes way beyond video games for Microsoft. Microsoft wants to own livingroom content distrbution in general not just gaming, as do Apple and Google and shitload of others. They have the ecosystem in place ready to support Web TV which is prety much the next gold mine and pendulum shift in user trends.

Check out this article -

http://www.theverge.com/2012/11/13/3633038/microsoft-xbox-360-trojan-horse-living-room

My prediction for the next Xbox is that it will be able to tie in with cable companies and push Web TV for the likes of Comcast, Time Warner, Rogers, with full PVR capabilities... This will include full advertising monetization over IP as well a subscription (cable TV + Xbox Live).

What do you think will sell more consoles... 8 GB od GDDR5 RAM or 99 dollar console, web TV, PVR all in one if you sign a 3 year cable agreement for standard monthly cable subscription?

 Sadly, its all hope and dreams, how the $99 360 deals doing in the US. I am going to pay MS, my cable company each month to watch tv, lol.

I think the next generation will look similar to the current generetion. Both PS4 and the next Xbox will be expensive and will be outsold by the WiiU in the 3-4 first years. The WiiU will see its sales go up with a price cut the same manner it did when 3DS got one and also when Nintendo big guns will be launched.

Nintendo will still struggle to get major 3rd party support but will sell better relying on its first and second party titles and a few 3rd party (Monster Hunter, Dragon Quest, Ubisoft titles, etc.). The graphics gap will also be smaller than what wee see last gen between Wii vs. PS360.

Sony and Microsoft will still fight for the high definition shooter crowd where Sony will do better in Europe while MS will do better in America.

This is what I think will happen unless Microsoft show a revolutionary console in April as Sony clearly not showed anything revolutionary this week. Also I think the three consoles will sell less than their predecessor and that the generation cycle will be shorter.

Nope.

360 for 99 dollars + monthly subscription (and none of the web TV/ cable features) was just a test.

And no you wont have to pay Microsoft and cable company. You will pay one fee for TV like you do now.   I don't expect most people here to understand the business model so I don't blame you for not getting it.

I work for a cable company in Canada.

Currently none of the big 4 cable providers here have a clue how to attack the web TV market with a sound business model. You can put the content online but advertising revenue on TV vs online is nowhere near parity. Plus for every person that stops watching Glee on TV and goes to watch it online somewhere, who is to say you will go to watch it on the cable sites and not on Netflix and somewhere else.

All cable companies want to move to the IP business model and they will gladly give a cut to Microsoft  (70-30 revenue split most likely) to get a piece of the action online.  This will cover the xbox Live fee.