I remember the PS3/360 thing. This is only speculation as to why it happened, but Microsoft had been hyping up at the time the incredible power that their 360 was going to have, boasting some incredible specs.

Then the PS3 announced it's specs, and it was a noticeable step up from what Microsoft was announcing, and way to close to release to be able to do anything that could close the gap.

Their one advantage was price, so in order to try to get any kind of hold on the market the product was rushed out before they wanted to since they put so much of their promotion into being the most powerful system, only to get upstaged, and thought beating Sony to a release was their only way to stay relevant.

This probably killed them as a console manufacturer, because as far as I know each console release has lost Microsoft Money. And after they killed trust with their hardware failures on 360, they pretty much doomed themselves.

Their XBone shenanigans didn't help either going into the current generation, so I wonder if Microsoft will survive another console generation.