Microsoft has stated that one of their primary reasons for entering the game industry was as a defensive move against Sony. Sony's PS2 product and threat of a next-generation product was going to impact the home entertainment industry in a big way. On top of cutting into consumer PC sales, which Microsoft relies on for its Windows operating system.
How much is this defensive stance worth? Apparently a minimum of 1.6 billion dollars. Microsoft has not seen a profit in their games division since 2001 (xbox launch). Many people are buying into the Xbox 360 lifestyle and games are looking better each day. However, Microsoft is not really benefiting from our dollar bills...just yet.
Microsoft's networking plan with LIVE is an obvious success story and will be a bullet point in history when talking about advances in console generations. They've produced a product one year ahead of their competitors and the product remains in the home today. Why do they bleed?
Consumers are demanding. Always wanting something better with their next generation console system, and to be competitive one must invest a large amount of money to be a market leader (or follower). Microsoft considers this money well spent as an "investment," although they've said the amount spent was more than originally estimated.
This investment will protect them from a hostile Sony take-over. An industry analyst was quoted by www.next-gen.biz as saying:
"It's very hard to calculate the worth of a defensive business. I personally think Sony will have a really hard time with the PS3--fewer games at launch, $200 price premium, and yet they're losing more money per console than Microsoft is on the 360. More long-term, imagine no PlayStation 4 and how Microsoft might profit from such an environment."
Perhaps Microsoft is playing the "we have more money to waste than you" card on their compeitition? Sony is putting out a product in a month that has the potential to re-capture a market that they've owned for years. Sony is party responsible for the death of Sega's console and the loss of Nintendo as the staple home entertainment system.
Sony's next-generation PS3 has received a great deal of negative press since E3 2006. Regardless, it is a fairly risky move to call "all in" on a bet when you have very little clue what cards your opponent is holding. Outlasting a competitor only works if they fail and Sony has yet to fail on any console release. This will be their third big console launch and they could well go three and three on the success checklist.
