Not that they'll listen, but now is the time for Microsoft to go for broke in the console wars. Sony has just reported a significant loss, much of which they blame on development of the PS3. The cost of the device (about $500) is about $100 more than the selling price This means that if they sell the 7 million they project by March of 2007 they take a $700M bath.
Now the console wars are important for both companies, currently Xbox consoles and games are 10% of Microsoft revenue, but at what point do the executives at Sony get fed up with competing at a loss? Wouldn't now be the best time for Microsoft to drop the prices of their console in order to gain more market share? I see the PS3 price going up (it has to). Microsoft needs to step in the tub and discount their box in order to further put the hurt on Sony in this space.
We all know that the real money is in the game titles, with long term margins in the 50%-70% range. Obviously Sony has a better title launch strategy (which is why losing money on the console was acceptable). Question is: did they foresee a delayed launch and a huge loss prior to the GA of their device?