MS had plenty of reasons to want to get into games market (and by extension similar markets with Zune).

While tightly linked with business usage for OS/apps they also saw consoles/electronic devices taking over personal use and the beginning of device convergence.  They saw growing games industry linked with consoles and transition of PC to device focused around MMO/Online gaming.  They saw Apple revitalised and taking market by storm with Ipod.  They saw Google (and others) starting to undermine its OS/apps position.

Their worry, slowing being squeezed out of a market that changes to internet/content centric home devices and portable access to work/content with the importance of a heavy OS and Office Apps severly diminished, with consoles/media centres dominant in the living room and controlling access to online content/services.  They saw their work to have DirectX become dominant over OpenGL threatended by home consoles and of the fact (so I believe) they didn't tend to use MS code/standards such as DirectX.

The Xbox was their first attempt to push into the home and gain a foothold in that market. The 360 continues this and of course is part of their entertainment division with Zune, etc. which is attempting to fight on this fairly broad front.

MS faces some serious challenges right now. Overall they are the new kid/smaller brand right now. If you compare their total games sales/success with say Sony & Nintendo they still have a long way to go to get near either of those companies highs. They also trail Apple for music players, etc. I mean 360 has done okay - but given its time to market its not really sold that much to shout about vs the bar set by previous consoles. And while brand loyalty can be broken, and many are not brand loyal, plenty of people still are, and I have no doubt that from a WW perspective MS still trail Sony and Nintendo as a brand for games consoles, just as they trail Apple as a Brand for Music players.

I'd also say 360 is not so much beating PS3 as Sony simply mismanaged PS3 launch and adoption. If you look at the initial sales spike in Europe for example, you can see demand for PS3 was way above anything MS could hope for currently. If Sony had actually made sure they had a stream of games/features ready to follow I have no doubt PS3 would have sold far above current levels - instead of course sales crashed when nothing in the way of games came through apart from a stream of poor PC/360 ports.

Now they have Google quietly attacking their desktop superiority and adoption/brand image of Macs steadily gaining ground vs PCs.

So MS has plenty of reasons to be in this market - but its paying through the nose for the privilege; and with so much paid for exclusive DLC, big price cuts, etc. I'd love to see some clear accounting for 360 sales/profits, as I'm very curious how the console's really performing, something which I feel is far from clear (particularly as I work for a very large company and I know how easily our accountants/marketing can spin sales/adoption to suit themselves depending upon how they chose to allocate costs and recognize revenue).

Do you mean beat Sony? And in video games? As in, Why does Microsft want to take away Sony's video game market share? Because they are competeting. They started to prevent Sony from expanding the Playstation line to PCs, and now they are trying to make another profitable division other than windows. Likely their plan was to gain market share 1st gen, then barely win 2nd tie. They will have a good shot at winning next gen.

@Reasonable: Considering how bad strategy M$ had when entering the console market, you'll notice that there's more in stake than just moneymaking. Especially when their venture on mobile phones market ended as fast as it started.
Zune, i believe, is making money, so there's no need to quit that market.

The strategy M$ is using, works well when you are the supreme market leader with product that you can enchange the way you want - even afterwards. But in a console market, where you need to think your product before it's lauched, M$ seems to pretty much lost. They are pouring truckloads of money into many directions, with practically no financial gains and maybe the best example of M$ not "getting it", was when 360 launched, Bill Gates told that 360 will be upgraded to include HD-DVD drive. Basically what they are doing at the moment, is find out Sonys intentions and spend a shitload of money to get the same functionality.

And Sony really did fuck themselves up with BD. First it raised the price of PS3 way too high and then it created a price deadlock, where Sony can't go below of its profitable standalone BD players with non-profitable PS3.

Premtive strike that initially seemed good, then kinda failed, and is now doing well again, but has cost billions and billions never the less. Sounds like a certain war *cough*

depends on what you define as "winning"

@Hawkeye: They have office as another profitabke venture.

I disagree about M$ having a good shot in winning next gen. Their problem is Windows. Nintendo and Sony has always a chance to go towards PC in terms of functionalities, but M$ doesn't, if it doesn't want to start eating up its own core business. They should somehow get Windows assosiated with consoles, although the console price may go too high and because of the strategy M$ uses, the consoles would need to be other than M$:s consoles.

@Hawkeye: The strike isn't actually working, since it's Nintendo who's pulling the carpet under Sonys feet and Nintendo may pose a threat to M$ in the next gen.

That's true.

Competition makes companies more efficient, drop prices and makes them less lazy.

The PC market is saturated. And there is fierce competition brewing. If they can move everyone over from PC's to proprietary hardware on top of a propretiary software stack they gain a huge advantage. They can't just come out with a computer, they'd be competing with their vars and really raise a rucus!

Extend their dominance further, moving away from pcs. They'll spend anything now to get what they want because there is no way they can LOSE MONEY doing this. It's pretty much like playing roulete and being allowed to double your bet, inedfinately, guranteeing wins.

@DaSimkin: That has been the case for a long time now. The hardware/software strategy M$ is using is reply to this. While the tech advances, M$ releases new operating systems, that "take better advantage of the new hardware", in other words becomes more resource hogs. This cycle, along with games, keeps the PC industry running. When you add the Windows registry in the mix, you'll end up creating a loop, where people buy new systems just because they think that their PC:s have aged and become slow due aging.