Their strategy worked brilliantly, and none of their competition has such a strong competitive advantage. Does it matter that it was expensive to acquire all those Live subscribers? No it does not. They made a huge bet on the future, and they had obscene amounts of cash available to do so.

While Sony has spent the last few years trying not to go bankrupt, Microsoft is sitting on nearly $70 billion in cash. While Sony can't make a profit, Microsoft is generating $6+ billion per quarter. Microsoft can afford to make long term bets; Sony cannot easily replicate that approach.

If the PS4 isn't successful, Sony is done in the console business. Given Microsoft's failure in tablets and smart phones, you can bet they'll spend whatever it takes to keep the XBox relevant in the living room.

The latest Nintendo console is going to be a flop (on par with the GameCube), leaving only the PS4 as real competition in traditional console gaming. Microsoft will widen its Live advantage over Sony & Nintendo accordingly, becoming one of the few subscriber kings (along with Apple, Amazon, Netflix).

But I have doubts. Even if the PS4 / WiiU fail and Microsoft does "spend whatever it takes to keep the XBox relevant in the living room", will that be enough? Microsoft wasn't shy about spending money on Zune, Windows phones, or tablets -- but the Zune is gone, the Windows phones have low single-digit market penetration, and the latest tablets don't seem to be doing better (we'll see, but it's not looking good).

Reasons I'm doubtful about the future of the Xbox:

1. It's not competing against the PS4. It's competing against Steam boxes, Android consoles, phones, and tablets. Not direct competition, but competition for our attention.

2. Indie games were big in 2012, and 2013 is looking bigger. Microsoft's platforms (other than Windows) are looking less palatable, especially for newer studios. Larger studios still fail as often as they ever did, but they're not getting replaced. The AAA titles will keep coming, but they're competing with scrappy folk who license the Unity and Unreal engines for prices that are very friendly... until you want to release your game for the Xbox.

3. With every generation of consoles, it becomes more difficult and expensive to produce content that leverages the new technology. It was a long time before people figured out how to produce content that really made the PS3 look better than the PS2, although much of that was due to architectural decisions. It may be that the survival of the Xbox depends more on what the market looks like in 2015 rather than 2014 or 2013. What will Apple have released by 2015? How many indie studios will have edged the behemoths out of the industry?

4. New generations of consoles no longer provide additional media functions that consumers desire. Two generations ago you got a pretty fine CD player with your PS1, last generation you got a DVD player with your PS2, and this generation you can play Blu-Rays or stream content from Netflix/Hulu. What's left? We have a PS3, but much of its justification was as a way to play Blu-Rays, Netflix, and Hulu.

On a side note, every time I've stopped by Ground Kontrol (the local arcade) recently, it's been packed. Even with a cover charge, even when most people have work tomorrow, even when the machines cost 25¢ per play, the doorman was turning people away because the building was at its occupancy limit.

Live is based around mainly exclusionary practices - delaying demos, preventing you from playing multiplayer or using Netflix. PS+ on the other hand offers discounts and even free games (while you subscribe).

Or are you saying that, taking licensing into account, the Xbox still lost money for Microsoft?

2005 and 2007 were a long time ago. Do you know of more recent numbers?

The second link has recent numbers.

In what world? The Xbox has been turning a profit for most of its life. AFAIK it lost money its first couple of years (primarily due to the fact it was rushed to market), and since then it has been largely propping up Microsoft's entertainment division, which otherwise would be bleeding like mad. (The division lost money last year not because the Xbox was unprofitable, but because it wasn't profitable enough to cover Windows Phone's tab as well as its own.)

That, and the fact that nobody in Japan wanted to buy one.

You hear people say this a lot, but based on my experience, it's basically bullshit.

Japanese people love non-Japanese stuff, and indeed, being foreign gives a product cachet.

However, they're also fairly different than American consumers. In particular, they're (1) super picky (in a way that Americans really aren't), about quality, but also style, reputation, etc, (2) not so price-conscious, and (3) maybe a bit more reluctant to take a risk on something unknown.

In the case of the PS2/3 vs. the xbox/360, the PS series had a huge name-recognition / familiarity advantage, and better support by Japanese game makers offering popular series. MS tried to prime the pump by pushing some "Japanese style" games heavily (and paid through the nose for prime placement in shops), but if you're a Japanese gamer who experienced the sheer massive volume of domestic content for the PS series, sticking with it seems pretty sure bet. Moreover, the high price of the PS3 was a bit less of an issue than with very price-conscious Americans.

Look up the "chicken tax" sometime.

Ecomonomics?

> The Xbox has been profitable for most of its life

No.

https://docs.google.com/spreadsheet/ccc?key=0AmSmlk-Wo4uhdEh...

"it lost money its first couple of years … and since then it has been largely propping up Microsoft's entertainment division, which otherwise would be bleeding like mad."

That is exactly what that chart shows. The Xbox has been turning a yearly profit since 2008, which means it's been turning a profit for most of its life.