The purpose of this thread is to discuss what strategies the console manufacturers use to attract third party development, and how effective these techniques are. As far as I can tell, these are the stretegies the big three are using:

Microsoft

1. Keep dev costs low by maintaining compatibility with Windows game development.

2. Help fund third party development in exchange for (timed) exclusivity.

3. Limit first party development to avoid competing with third parties.

4. Free XNA development tools for independent developers.

The first two are pretty uncontroversial, but I'm reaching a little for that third one, so let me explain my reasoning.

The past couple of years have seen Microsoft close down and distance themselves from a lot of developers they had under their control. Bungie and Ensemble are the two most prominent examples, but there are a few others as well. It seems strange that Microsoft would be scaling back their first party development capacity when they have the weakest capacity of the big three.

My theory is that Microsoft has decided that it can get a hardware-driving effect similar to first party software by funding third party exclusivity, and that doing this will reduce the financial risk to Microsoft. As a side benefit, it makes their platform appear to have less first party competition for third parties to fight with, and makes it look more open to third parties.

Nintendo

1. Keep dev costs low by using older, less powerful, and well-understood architecture.

2. Keep licensing fees low by earning a profit on the hardware.

3. Provide consultation to third party developers to help them understand the nuances of your platform.

4. Form strategic partnerships with third parties, paying them to develop games for you and sharing your IPs with them.

I suspect number 3 isn't at all exclusive to Nintendo, but I see it mentioned frequently by developers from small WiiWare teams to huge publishers like EA and Ubisoft. Perhaps it's just because game designers feel they need more help tapping the Wii's unique interface then they need designing games for classic gamepads.

Number 4 is a curious departure from Microsoft's approach. Both are investing money in game development for their platform, but Nintendo is making sure they reap more concrete rewards through publishing deals and no doubt special licensing fees for using Mario in Mario & Sonic at the Olympic Games. While this probably earns Nintendo a better return on investment, it might also create the impression that you can't succeed on Nintendo's platform unless Nintendo takes you under their wing.

Sony

1. Hope to have the largest install base.

2. Form special publishing arrangments with select developers while allowing them to maintain independance.

Okay, I obviously need some help from you Sony fans. I don't know if Sony is really secretive or if I'm just not paying attention, but I really don't know what Sony does to attract third party development. Being the historical market leader is an obvious advantage, but surely Sony has more methods of attracting development than just these. So I'd appreciate if somebody would enlighten me.

Sony's publishing partnerships with third party developers seem to work a little differently than Nintendo's. As an example, Insomniac is technically independant, but all the work they do is published by Sony. Sony seems to be less involved in the development process than Nintendo, while keeping the third party partner closer and away from working on other platforms. Which approach is more attractive to the third party probably depends on which third party you're asking, but both approaches yield good benefits for the publisher, while possibly deterring developers without such a priviliged relationship.