I see a couple comments here, including the highest voted top level comment, questioning how the xbox can be "crushing" their competition given that a straightforward reading of console sales indicates things aren't so cut and dried.

However, the xbox is crushing its competition, in several ways, and let me explain why a naive reading of unit sales is misleading.

Many consoles sell at a loss, especially initially, or on a very small margin, console sales alone are meaningless. Console sales themselves just serve to expand the player base, enabling follow on game and service sales where the vast majority of the profit to the console maker and of course to the game makers comes from.

Here's where things get interesting. Nintendo has always sold everything at a profit, so they've never lost money on incremental console sales. However, again that margin is still fairly small, what they need is game sales. And for the Wii that's been a disaster. They sold a huge amount of consoles but a lot of the people who own them don't play them very much, and they don't buy many games. This is a big reason why Nintendo has stopped making a profit overall as a company the last few quarters, which has been rather disastrous for them.

Now let's look at Sony. They started off with a crazy console design, which is almost an experimental prototype device, this is not the sort of thing one usually does with a console. The result was that the hardware of the console was hugely expensive, which meant that they were losing a huge amount of money on every console sale, about the same as the cost of a Wii. This meant that Sony needed to have strong follow-on game sales to make up for such huge loses. However, because the console was so difficult to develop for they struggled with game availability for a long time. Eventually these factors started to become less of a problem. Multi-platform game engines eventually matured sufficiently to where it wasn't a huge problem to target PS3/360/PC releases for most games, and that has helped PS3's game library tremendously, in addition to a very small handful of excellent exclusive titles (such as Little Big Planet, Heavy Rain, etc.) Also, eventually Sony managed to reduce the hardware cost of the PS3 down to a point where they weren't bleeding money on each sale so horrifically. However, despite all of this improvement it's questionable whether the PS3 has made a total profit for Sony overall, and if it has it's likely not very large. Worse yet, a lot of Sony's big efforts such as the playstation network and the Sony Move have not taken off and not garnered much enthusiasm in the market.

And then we get to the 360. This console certainly has its fair share of problems and debacles. At launch it was definitely sold at a loss to the company. It struggled with reliability problems and expensive warranty extensions through many of the early hardware iterations. And sales in Japan have always been weak. But, somehow it managed to come out ahead. The 360 never sold at as much of a loss as the PS3 and it didn't take long for them to get to a point where they reduced hardware costs enough to make a profit on console sales. Even with the expensive $1 billion warranty extension their balance sheet on pure hardware alone is far, far better than Sony's, which means that MS actually needs to sell fewer games per console to come out ahead in total profit. As it turns out, people who own 360s are far more active gamers than people who own other consoles. They play for more hours per month, and they spend more money on games. Of all of the consoles currently on store shelves, the 360 has the highest multiple of average number of follow-on game purchases per console. But it doesn't stop there. The Kinect add-on has been one of the most popular consumer electronics devices in history. Also, whereas every major competing online multiplayer service is offered for free (Steam, Origin, PSN), Microsoft's Xbox Live Gold service costs money. On its own it has subscription volume and costs similar to the most successful MMOs in existence (such as WoW). That's a testament to the sheer volume of people who think that Microsoft's service offering is valuable enough to pay cold hard cash for, but it also, of course, goes straight to Microsoft's bottom line, to the tune of around a billion dollars per year. And because it's a digital service the development costs are fairly low. But wait, there's more. In addition to game sales, xbox players are also more likely to purchase DLC packs and other digital content such as xbox live arcade games. Again the incremental costs on these digital goods are fairly low so Microsoft (and the game publishers) make a much higher margin on them.

What does this all mean? Several things. First, in total Microsoft has been far better at consistently extracting significant profits from the gaming market over the lifetime of the current console generation. Second, Microsoft has far more momentum in terms of game sales and customer loyalty and enthusiasm than the other console players. Third, Microsoft is making far more headway than other console makers in earning revenue from digital goods and services, where the profit margins are the highest. Fourth, many game makers find that they make a lot more money from the xbox versions of their products, which helps ensure that exclusive games that aren't on the xbox are a rarity.

And this is precisely why this year we will see all 3 companies release new consoles, and why Nintendo has already done so. Because without a significant disruption in the status quo the result is that the xbox will continue to outpace everyone else, and continue to gobble up more and more market share and gaming revenue. Nintendo is trying to give themselves a chance to stay relevant. And Sony is trying to put themselves on a new footing. And Microsoft is trying to hold onto what they have or extend their lead.

Note that I intentionally left out a lot of complicating elements such as competition from PC and mobile/tablet gaming, introduction of new console makers, etc. That may play a role in the future but it hasn't played a significant role in the fight between the different home consoles so far.