Hm, tough one. Yes, Nintendo is disrupting Sony's plans, but they're not going after the multimedia centre - they don't care about it. So Sony still has a chance to establish the PS3 as the future multimedia hub of choice. For this reason, I think MS will want to keep the X360 alive to take market share away from Sony. Either that, or sell it to someone who will do the same.

Nice read, M$ only knows why they did it.

1. They probably thought that since they have the edge in software, they are a software company after all, that videogames would be an ideal new venture to get into. This part, they got right, no doubt about it. Their biggest strength is the online component of gaming which Sony and Nintendont really lag far behind in.

2. They underestimated the portion that hardware would have in this, which gave us the RROD

3. They also assume that they can coast by on their early success, that Sony won't get its rear in gear like it has and will continue to do, and that they can do well much less "win" by only caring about NA

4. That they can get by with a "bulk force" strategy of spending heavily on things like marketing I mean I see them advertise more often than Sony or Nintendo combined, but again, while their motivation is strong they haven't really thought well or carefully enough about this whole thing, see 2 &3.

5. According to the few articles written on MS's next console, the biggest gimmick, and all the consoles are gimmiky, will be HD movie downloads.  dumb dumb retaaahded.  Why will this save them?  Because it's going to be unique?  Well, mabey for a short while, but there is no reason why Sony, couldn't do this themselves.  Sony will be able to offer these downloads cheaper as well, since they are a movie company as well, and have better relations with the movie people, so they will probably be able to do it better and have more HD movies to sell as well as the price factor.   

It's always easy to be wise in hindsight. But even if it wasn't a good decision to get into the console business then for MS, that doesn't correlate to the sitation they are in today in terms of selling it off and get rid of it. That's what you have to understand with business. CEOs and accountants at corporations don't stare themselves blind on past losses. The important factor is the future, and the question "will we be profitable from here on?".

And apparently MS believes they will profit in the future and that staying in the console industry is a good thing (theoretically even with an Entertainment division in the reds, if the plan is still to disrupt Sony in the future).

So what we can discuss is the past. Personally I'm sure that MS believed the original Xbox would be a lot more profitable, maybe not as a whole, but I'm sure they counted with less than the total $5 billion loss for Xbox (+ roughly $2 billion in the next-gen investment, aka X360).

If the X360 draws in let's say $2 billion in profit until the next Xbox is launched, we're down at 5$ billion total loss.

Now what we don't know is how things would have been with Sony and the PS3 if MS never had entered the market. Would the PS3 be a lot cheaper, attracting +100 million people to a machine that would function as your media hub? And that would be the basis for "conquering the livingroom" and X amount of $$$ in the future, and perhaps even could mean some lost sales of Windows OS for MS.

We also don't know much trying to judge the present situation, where MS is among the players who battle for the future living room. But if the "living room media center"-scenario takes off in a few years, and download services and whatnot generate net incomes in the billions, that $5 billion initial loss might have been worth it for MS.

They were thinking that they would do better than Nintendo and Sony but...

Umm I will say this I have an uncle who works in Microsoft's seattle facility. he told me why Microsoft entered the console industry. He stated it was because Sony was eyeing making themselves an OS and making PlayStation into a home computer brand. As PS3 is more like a computer then the last console and Sony is increasingly eyeing the computer industry for its future.

So Microsoft took the initiative first by supporting the Sega DreamCast with a Microsoft XP OS as well as helping them get their console online etc...etc... However DreamCast wasn't doing its job in distrupting the industry. So Microsoft jumped in to stop Sony and cut their line of support.

Sony's entertainment division at the time was heavily funded by PlayStation which brought in record profits on a yearly basis. Microsoft had to prevent Sony from entering into its own market space, so good old Bill Gates looked into entering the industry.

First Mr.Gates looked into buying Nintendo out right and bringing the GameCube out under the Microsoft label. However the deal never saw actual implementation and Microsoft instead quickly hired former Sega execs etc...etc.. to put together the X-Box.

The X-Box launched with pretty much no first party support. Microsoft invested over 4-billion dollars in losses during the origional X-Box to ensure it succeeded. it purchased Bungie , Rare and many other studios to bulster its first party capabilities.

Microsoft had a three phase plan in terminating Sony. Entering the industry with the X-Box , using the second console to break Sony's grip on the industry and using the third console to decimate and remove Sony as a potential threat.

Microsoft is supportive of Nintendo's DS and also of the Nintendo Wii because Nintendo is moving further out of Microsoft market space. Nintendo is sticking to games and only games and not intrested in producing a multimedia center to compete with the PC. But Sony is intent on bringing its PlayStation brand to the computer as has been stated many times.

This makes Sony a major threat to Microsoft's stability and marketshare. If Sony entered the computer industry using its movie, music and game properties it could easily deliver a knock out punch to Apple and severly damage Microsoft.

So Microsoft is acting in its best interest. My best bet is that after the next console Microsoft will merge its X-Box label onto PC. Switching to an X-Box service on computers rather then an actual X-Box console.

Well, that seems to make a lot of sense. I would like to add one thing. Xbox is basically a short for Direct X Box. Their other intent is to use the Xbox as a way to support Direct X and encourage developper to develop games for both the PC and the Xbox. By doing so, they try to stop the drift that has happened to PC gamer towards the consoles. They also are reinforcing their dominance in the OS market by ensuring gaming thrive on Windows. 

The other front MS is attacking is online. We are seeing a lot of synergy lately with everything called live. Live has basically replaced MSN and its their way to attack Google which is one the biggest threat to their dominance. Their worst fear I believe is for Google to make an operating system that would compete with Windows. That's why they are attacking them on their on field.

 I believe Microsoft is a cancer to the computer industry. I needs to be destroyed in other for us to get what we really deserve (no shitty Windows Vista, no stupid docx that aren't compatible with anything, no protected media path, and so on). MS in gaming really isn't as bad as it is in the other fields as it can't use their "Embrace, extend and extinguish" strategy has much but still supporting them is supporting Windows.

That's a long post....MS's goal for the xbox is to take over your living room, just as they have virtually taken over the PC world. They want a cut of every digital transaction you make, anywhere. Except, as Godot said, it's not working as well as they'd hoped.

Microsoft has been making video games on the PC for many years. I believe they first started making video games back in the 1980's. Console market is just to make more money and to get casuals into video games. MS Windows have been publishing games for many many years.

 It would have been on the PS2 with out Microsoft...

http://ps2.ign.com/objects/014/014552.html