So far this generation, Microsoft has seen a lot of areas of success with the 360. This year, a lot of that has changed. First, let's consider the good.
Microsoft has made some serious inroads by bringing Sony's biggest, established exclusives to their system as well. They've also increased their overall marketshare considerably, especially in the US. And recently they finally enjoyed their first full year of profitability on the Xbox 360 not including the cost of ongoing RROD repairs. Through 2007, the 360 was outselling the PS3 in most areas significantly. Microsoft has been bringing in a lot more revenue than ever before. And while revenue doesn't mean anything on its own, it is a measure of potential to an extent -- if they could cut costs, they could convert more of it into profit. This is primarily academic, though, since cutting costs often means selling a cheaper product.
Games have been flying off of the shelf for the 360. Halo 3 was their biggest launch ever, and may stand for some time as the biggest media launch for any media. The Xbox 360 has a great overall attach ratio and because of Microsoft's early launch, it has become the defacto third party system to develop for. The Xbox 360 has become the best JRPG console this generation.
The XBL marketplace has been a success as well. It works, it sells movies, it sells games, it sells content for games. It's a selling point for the console for a small set of users (the users with Internet connected consoles, with access to payment, willing to buy content and watch it using their console).
Now, let's look at the bad.
The 360 is Microsoft's sole gaming product and it only enjoys serious success in one region. And lately, Sony has been beating Microsoft in the US. For the first three months, Microsoft had claimed there were shortages of the Xbox 360 and this is why it was losing to the PS3. But now that GTA 4 came out and the summer has progressed, we see the Xbox 360 being significantly outsold by the PS3 and very obviously no 360 shortages.
Microsoft is not innovating. They've taken a lot of games from Sony and a lot of ideas from Nintendo. As the recent arstechnica article linked to at the bottom of this page mentions, people at E3 were laughing at Microsoft during their presentation because of how obvious a rip off their new avatar system is. Microsoft was the first to bring online to consoles, but it offers only a subset of the functionality of computers, is technically inferior (few or no dedicated servers), and costs a monthly fee which automatically precludes a large set of people from ever using it, and its a nusance for others.
The most glaring facet of Microsoft's inability to innovate is their game strategy. Microsoft brough online first person shooters from PCs to consoles. As far as online gaming is concerned, Halo 2/3 are slightly watered down versions of first person shooter action on computers -- these games are fine games, don't get me wrong, but there is absolutely nothing new here. It's just a carbon copy of online PC FPS games adapted for consoles.
Microsoft has managed to get most of Sony's great exclusives, but they've failed to develop anything interesting first party. They bought Rare, who has managed only one very good release for the system so far: Viva Pinata. This leaves Microsoft's strategy look a lot more like slash-and-run than bring innovation to the console market.
In 2008, sales have taken a turn for the worse when compared to the PS3. Microsoft has had their biggest release of the year with GTA 4. Sales are a little up year over year, but not nearly as much as the PS3. And not nearly as much as the Wii either. In Europe, the 360 is floundering despite its already bargan basement price tag. The same goes for Japan.
There is little question that the Xbox 360 in 2008 is in a weaker position relative to the PS3 than the Xbox 360 at the same time in 2007 was. In this market, innovation is everything. Nintendo has done a lot with the Wii since launch, and now that Sony is really getting established they have a variety of good innovations on the way. And yet we see little in the way of innovation from Microsoft. It looks like they're going to give up their world wide installed base lead over the PS3 up without a fight, and if things continue to deteriorate for Microsoft they may even lose their US installed base.
My comments have been inspired by the following article at arstechnica:
http://arstechnica.com/news.ars/post/20080817-microsoft.html
