The company did not want to be confined to producing software solely for office equipment.
In an extensive interview with Eurogamer, former Xbox 360 chief Peter Moore disclosed details of the rivalry between Microsoft and Sony during the seventh generation of consoles. He said Microsoft feared Sony was on the verge of dominating the home entertainment market.
Microsoft — and Bill [Gates] in particular — feared Sony would seize control of the living room. It sounds a bit odd now, but at the time Sony had a strong foothold in home entertainment: televisions, Blu-ray, and music players. Bill and Microsoft’s senior executives were concerned their company might be confined to offices and desktops as merely a software vendor.
To wrest the initiative away, Microsoft released the Xbox 360 in November 2005 — a year before the PS3 (November 2006). The aim was to be first to reach 10 million users and create a “flywheel effect”, where friends buy consoles so they can play together. The Xbox 360 also launched at a lower price — about $400 versus $600 for the PS3 — delivering a major blow to Sony in the price war.
Source: iXBT.games