What should Microsoft do?
I think they should attack with a pricedrop. How much should this be? Most likely $50 or $100. With $50 they will hurt PS3. With $100 they attack Wii and hurt PS3 even more. They need act this year before PS3 could make a come back.
If 249 349 429, then 549 @xmas.
Q3/4 '08 - 149 249 329 ,then 399.

Sony will give a big pricedrop mostly next year. I don't think 360 will drop $50 and next year $100. It will be more logical to drop $100 first and next year just $50. This will force Sony to drop $100 @ Xmas and next year $100.

Actually, Apple is one of leading computer sellers in the world and holds the highest margins. 5% marketshare is actually pretty big as far as hardware goes. In addition, Apple computer buyers tend to buy Apple software and accessories, think iPod.

I would agree that 5% isn't much in the OS world, but that's a completely different as Operating Systems are not a commodity business.

The discussion of cost reduction is interesting... It's not a field I know much about, but aren't there other factors in bringing electronics costs down? For instance, I believe that the PS3 has been using a 65nm Cell chip since March, rather than the 90nm chip it launched with. What I was told at the time was that the smaller chip would not only reduce Cell costs directly (by increasing yields and reducing the failure rate), but that the lower heat of the chip would cause a cascade effect that would allow them to remove cooling hardware and rearrange the architecture of the machine for lower costs all around. And then there's the synthesizing of different components to reduce the overall number of components produced (like dropping the EE), which should also have a big effect.

I don't know how much Sony has dropped production costs so far, and without that information it's pretty pointless to speculate on how much they can drop the price. I find it hard to believe they're still losing $2-300 per console, or whatever number people are throwing around now (haven't BluRay diodes alone dropped from about $100 to about $10 since launch?), but it does sound like they're still losing money, in any case.

Personally... with the right lineup of games, I'd probably be willing to pay up with just a $100 drop. I don't think they should give a pack-in game, because ultimately I think people just look at the price tag, not what's in the box. But maybe that's the way they'll go, since it's a cheap way to add some perceived value (I can't imagine a game would cost them more than 1/3 the retail value). Chances of a MGS4 pack-in as someone mentioned are nil, as much as I'd love that - they would never include an M-rated game. LittleBigPlanet, though, could be a real possibility. It's first-party, it's a great tech demo, and it appeals to a wide audience. As a pack-in it would be a great answer to Wii Sports.

So without any real basis, here's my prediction: I think Sony is going to surprise us this Fall with a $150 price drop. That or a $100 price drop with LBP included.

Sony had a GT3 Game pack with the PS2 that sold very well. I bought one in fact. I believe it was 329$. I sold my DC and all my games for the purchase. I think having a game pack would be a good Idea. They still need there base units though and a price drop of at least 100 bucks.

 got to love limited edition consoles.. i still want the limited edition FFXII console.. its awesome looking. 

The problem is that Sony and Nintendo have two very different goals. Nintendo is a gaming company that desires nothing more than to be a gaming company. It can survive and profit quite well with a core group of devoted gamers.

Sony, or more specifically Sony's gaming division, is concerned less with games than with becoming the Imperial Rulers of Living Room Entertainment. It is in a multi-generational competition with Microsoft to achieve this goal. It was ahead, comfortably, and the PS3 was a huge step towards introducing the MegaMultiMedia Entertainment System. Now they have fallen behind MS, and will see a GameCube-like finish this generation as a serious setback towards their goal of Entertainment Domination.

Very true, there was a class of consoles that tried this before known as the "High End A/V Multimedia Consoles" of the 4th and 5th generation. Such Consoles included...

- Commodore Amiga CD TV: $650

- Phillips CD-I: $700

- Pioneer Laseractive CLD-A100: $970

- 3DO Interactive Multiplayer: $700

- Apple/Bandai PipPin: $600

- Panasonic Q Multimedia System: ???

The largest difference between these and their modern day cousins is that the Xbox and PlayStation both had strong followings and companies willing to sink subtantial sums of money into them. Will the PS3 be okay, I'm not sure, this holiday season may very well decide whether it will be worth pursuing or not in the eyes of Sony, but that's only my take on it. Many have theorized that their financial standing as a company is far worse than their stock would suggest, but that in itself is for the most part conjecture as well.