PS4 is at 10M, WiiU is at 7M, and XBOne is at 5M.

So from a hardware sales perspective, Nintendo is still in the distant lead. Since both of them took a severe loss on hardware at retail at launch, Microsoft has made some up and is likely around -$400M while Sony is likely around the breakeven $0 on hardware at retail. Just like the last few generations, Nintendo made a profit from day one and is now sitting around $800M in hardware profits. I remember when the PS4 and XBOne launched at a loss Nintendo had a tongue-in-cheek congratulations to Sony on the record high sales, resulting in a record-high financial loss in the industry.

In software licensing the stories are different, but all of them continue to make money.

Neither PS4 or Xbox one sold at a loss (or if they did only a tiny loss depending on the price they charge retailers for each console) based on predictions of the cost of hardware which didn't account for the bulk discounts.

I have both consoles, and here's the issue in my opinion:

1): Sony's console does have a clear advantage in terms of raw computing power.

-There's no question about this. There are those who would argue that the cloud gives Xbox One an advantage, but Sony does have limited cloud computing available. Barring that, the advantage of the cloud will only show in exclusives. Multiplatforms aren't gonna use it much. It's like the PS3 Xbox 360 situation, only in reverse. In theory, the PS3 was much more powerful than the 360. In practice, the edge didn't really show up in multi plats.

2): Microsoft's exclusives currently just aren't there

-So far there's Titanfall, Ryse, Forza, Dead Rising, but there isn't too much. That's not to say that Sony's exclusives are there yet either, but they do have a slight edge (again, I do suppose that's up for debate), but that leads me to my next point

3): Higher price point (initially)

-They started at a higher price point for what seems to be very little gain. Sure there's cloud computing, the Kinect, and all, but not everyone wants the Kinect, and the cloud computing wasn't really advertised. Nor are there many exclusives out there to buy.

4): The backflipping

-Microsoft has flipped policies so many times that people have been put off.

I really liked Forza on Xbox One. The Drivatar thing is really cool. But that sort of feature is going to be rare for most games on the Xbox One.

I think the XBone has undersold for completely different reasons.

The xbox 360 is a great console and a great media centre. For me, I like the 360 and I play it sometimes buy mainly I use it for TV / Dvd's / casual gaming. A lot of people are like this (which I why MS marketed the XBone in such a way) thus there is no reason to upgrade to XBone one at that price point. This is certainly a bad thing for MS.

However, I think we will see 360 users upgrade at a much slower pace.

Of the people I know who own a ps3 (and have never owned an xbox product) they have been faced with constant problems (like games not being able to save or games completely broken with online updates), i'm not surprised they have upgraded to ps4 at such a rate. Fanboism at its finest.

Lets not loose sight of the fact that MS came out of nowhere with the original Xbox and put sony to shame, stealing a large market share in very little time. All things considered the xbox family tree has been a PITA for sony since day one and I don't think that is going to change.

TBH, I tend to hate on sony but both consoles are a bit pooh if you want to be objective. Neither are really pushing boundaries.

I think the XBone has undersold for completely different reasons.

The xbox 360 is a great console and a great media centre. For me, I like the 360 and I play it sometimes buy mainly I use it for TV / Dvd's / casual gaming. A lot of people are like this (which I why MS marketed the XBone in such a way) thus there is no reason to upgrade to XBone one at that price point. This is certainly a bad thing for MS.

Neither PS4 or Xbox one sold at a loss (or if they did only a tiny loss depending on the price they charge retailers for each console) based on predictions of the cost of hardware which didn't account for the bulk discounts.

Sources differ on those stories. Remember this is much more than the cost of the chips inside the console.

Many of the teardown-cost estimations were only of the hardware, they looked at the chips and the manufacturing costs. There are many more costs involved beyond the bill of materials. The packing foam, glossy double-walled outer box, the inner box with cutouts and support folds, the plastic wrap and twist ties, they are not free. Other details like support material, the packaging (both the BOM and the cost of stuffing the boxes), the worldwide shipping, and product placement (even though they are a big name they still pay for preferred placement in stores over their competitors) costs can add up quickly.

I had several sources that independently agreed Microsoft and Sony initially lost roughly $150 and $100, respectively, per unit sold at launch in the US. Of course we don't know the actual costs to create and distribute them, we also don't know the rates the retailers negotiated for the bulk purchases. Those secrets would be interesting if they were leaked.

Sources differ on those stories. Remember this is much more than the cost of the chips inside the console.

This is true, but compared to previous generations where the predicted loss has been on the hardware before any of the costs associated with packaging and distributing they seem to have targeted early profitability. I imagine the cost to retailers is close to the RRP due to the low profit margins early on with the intention to make money on game sales/accessories.

Oh I totally agree on that, the money is absolutely in software licenses.

That is why I tried to keep them very distinct in my posts above. Hardware profits in one paragraph, then another paragraph detailing software.

I agree with your assessment about low initial margins (even using a loss) to cover a few billion with a captured market. Taking a very early short-term loss is a small price to pay when it can yield an order of magnitude difference on the back end. The only strange part is that when you are talking about millions of units even a small loss sounds like a lot if you are not familiar with modern business.

At first blanch, when Microsoft announced they had spent $100M on research to improve the XB1 controller many people thought them insane. The X360 controller was oft-cited as the best controller in gaming history, and the changes Microsoft had announced to the new controller seemed tiny: a bevel change here, a slightly textured surface modification there. However, when you are talking about an industry of multiple billion per year and a device that will be in use for likely a decade, a hundred million becomes a small investment.