Let me put it this way and maybe it will make sense...

I will use an automibile race (nascar, F1, whatever suits you) to demonstrate the console race. The race consists of 500 laps, 100 to represent each of the 5 years of the console race.

Car 1 starts and is given a 100 lap head start. In racing, this would be near impossible to overcome.

Car 2 starts the race 100 laps (1 year) down in the race. By lap 190 (19 months after the race began when speaking of the consoles), car 2 has passed car 1. If this is not 'blowing by', I don't know what is.

QFT

yep, Microsoft let its console basically die... seriously they did jack all to help sales from January to July...

I think ignoring the hardware issues for so long really hurt them. It was all over the internet and yet they kept the "within typical defective #s" attitude until the point where they just couldn't ignore it without suffering lawsuits.

Then they responded with the amazing answer of -- get this -- a $50 price drop. And it doesn't look to have made much of a splash. The 360 did not pose a challenge to the Wii, and that's a shame. It should have. I have a feeling that 18 months from now we'll see a similar thread, "so the 360 is in last place, but at least it was released first..."

Microsoft has redefined its competition as "not the Wii" because they weren't prepared to compete with the Wii. And in the future when they fall into 3rd place they won't be able to make the same statement about the PS3.

This was a huge mistake.  Huge.  It doesn't take a genious to say, "More 360 owners are aware of our console failing regularly than the fact that it has HD graphics -- perhaps we should do something."  When Microsoft determined the writing was on the wall and the cheapest course would be to bite the bullet and pay for repairs, they went the skanky route and announced that their warranty was 1 year, but 3 years in cases of a certain failure.  Otherwise 1 year.  Why the confusion -- because there are a lot of non-RROD 360 failures and that would be a lot of additional cost.

Microsoft entered this race assuming the first mover advantage would win it for them.  They assumed profitability was only a couple of years away.  Now that it's clear that releasing a console first isn't what wins a console war (history already told us that) and their rush to get the 360 on the market was misguided, they're focused on attaining profitability for one year.  They need to show investors they can pull _some kind_ of profit, even if it has the stipulation that they aren't counting the cost of defective product in that profit and even if it has the stigma of nearly 7 billion in losses all around it. 

Who said that and when? Bill Gates even said the Wii was the 360's toughest competition in early 2007.

Back in November of 2006 Gates referred to Sony as the "real competition".  Here's a statement from Thompson, a guy Gates put in place to run PR for the 360:

Interestingly, and as I've mentioned, most of those people with 360s don't know it's high definition.  So it looks like Microsoft is completely out of touch with reality yet again.  Also, their toy is somehow different than Nintendo's toy.

Microsoft talks nice about Wii, but all of its actions say it doesn't take Wii that seriously. The Core could be cheaper than the Wii by now, but Microsoft would rather achieve profitability...that's a nice goal, but when did profitability ever stop them from losing billions in the Xbox vs. PS2 battle? MS also announced a couple of casual games and a buzzer-style controller. Too little, too late guys.

I think MS does take Wii seriously in a sense, but I don't think it will put out any serious competition for Wii until next generation.

All that said, I don't expect PS3 to surpass 360 in the next year or even two years. It may eventually, but MS will put up a much stronger fight on that front. It just hasn't had to try that hard so far because Sony screwed up so badly.

I guess he changed his mind, just like many analysts.

http://games.slashdot.org/article.pl?sid=07/01/10/1928215

It didn't try very hard against the Wii.  What makes you think it will try very hard against the PS3?  There is also the question of whether Microsoft can really compete with Sony in the console market.  Sony did a nice job of breaking both of its own legs before leaving the gate with a console that cost upwards of $800 to manufacture, but they'll recover to some extent eventually as they can push this cost down (it will be a long, slow process and they'll be lucky to get it under $300 within 5 years).

There is, of course, profitability to consider.  Sony is good at generating profit from its games division.  Microsoft has never generated even a year of profit and is about 7 billion in debt.  If they had to operate that division as a profit center, what would they be doing right now?  Not competing, that's for sure.  So even if they can compete for pure numbers, they have to turn that into profitability and compete while generating a profit.  That will be much, much harder even when you lie outright to your customers telling them that all Microsoft published games will be $50.

I think the difference is between how Microsoft and Sony have faced off against Nintendo. Nintendo caught up and passed Microsoft before they really got their second wind. Microsoft is betting heavily on the holiday season and their lineup. However until they got there they were exposed. Nintendo just surged into the opening. Microsoft is building momentum and never really stopped running. They are just not running as fast as Nintendo.

Sony on the other hand fell on their face right out of the gate. Stumbled all over the track, and quickly fell into a trot. Waving at the others saying we have a ten year life cycle we are distance runners. Thus we watched Sony slump for eight solid months. Then they managed some effort with a price cut in one market, and they are working their way back into the trot.

Would have been a far more interesting race had Nintendo caught up just one month later. We might have seen a slugging match for a few weeks. However Microsoft did not have their lineup in place. I think it took a lot of composure from Microsoft to not panic. Drop their prices sooner. Release key titles sooner. Drop their prices more. That shows some serious confidence that they will not become totally buried.

I would say Microsoft put up a great fight in that they did not just roll over and play dead like Sony basically did. Microsoft was at the least picking up pace up until they got passed. Sony has had perhaps a month of mediocre momentum. Microsoft is very much in the race if their sales see a significant trend over the next few months, and if Nintendo sees a slump next year who knows where the demand ends the race could liven up. I have doubts that Sony will really be in it by that point so that might help Microsoft.