* Guarantee not actually guaranteed. Offer void in Japan.

Microsoft has had a one-year head start, and they recently announced that they've shipped 11 million Xbox 360s worldwide. Their games portfolio got a major shot in the arm over the last holiday season thanks to Epic's Gears of War, which in January reached 3 million in sales. Microsoft's first-party offerings will be further bolstered by Mass Effect, Forza Motorsport 2, Blue Dragon and of course Halo 3. On top of that, more and more third-party titles, once thought to be PS3 exclusives, are heading to 360—GTA IV, Devil May Cry 4, Assassin's Creed, Virtua Fighter 5, etc.

Microsoft's Xbox business may not be profitable at this stage, but you can't deny that the company has made great strides in both market share and mindshare since entering the video game space back in November 2001. The Xbox 360 is in great shape, but to think that Microsoft has sewn up the console race simply because they're ahead with 11 million shipped (5.3 million sold in the U.S.) would be foolish.

That said, although this article is not meant to be a predictor of things to come, we do think the 360 has a legitimate chance of taking the crown this generation if Microsoft follows these steps (listed in no particular order):

1. Slash the price
Why is Nintendo's Wii off to such a hot start? Sure, the unique motion-sensing controls and accessible gameplay have been attractive, but there's nothing more attractive than a low price. $250 with a pack-in of Wii Sports seems like a great deal to the mainstream consumer. Even the PS2 at this very late stage in its life continues to outsell the 360... again, because it's $129.

By the time holiday 2007 comes around, Microsoft should implement a $100 price cut for all three SKUs. The Core system would then drop down to the "bargain" of $199 and would better compete with the Wii, the Pro system would become more affordable at $299, and some would argue that the new Elite, with HDMI output and a 120GB HDD, at $379 would be a steal.

We're convinced that Sony will drop the PS3 down to $499 by the end of the year, so why not beat them to the punch and really put the pressure on SCE? And yes, we realize that if Microsoft drops the price across the board, the Xbox business may pile up further losses, but in the context of Microsoft Corp., does it really matter if the profitability of the Entertainment and Devices Division (EDD) is hurt a little more? As a whole, Microsoft has money pouring out of every orifice – a billion dollars is like spare change you find under the seat cushion. They just posted a record net income of almost $5 billion, and that's in one quarter! There are companies that can't achieve that level in years. If there's one company that can afford to take a hit, it's Microsoft.

Besides, EDD President Robbie Bach has said that the Xbox business will become profitable in 2008, and it's likely that his statements already factor in an inevitable price drop on 360.

2. Offer a special limited edition Halo 3 360 SKU this holiday
There's one game that Xbox 360 owners and potential Xbox 360 owners want more than any other title, and that's Halo 3. Even without doing a single thing to promote the game, Bungie's next masterpiece would no doubt push many, many Xbox 360s off shelves, but Microsoft has a real chance to leverage that hype and give the 360 an even bigger nudge.

Coinciding with the release of Halo 3 later this year, Microsoft should offer a special limited edition model of the Xbox 360 that comes in Halo 3-inspired packaging, complete with Halo 3 itself, a Master Chief faceplate, and other Halo goodies not available separately. There are plenty of original Xbox owners who haven't been converted to Xbox 360 yet, and there are just as many gamers who've been sitting on the fence, having never owned an Xbox or Xbox 360. A Limited Edition Halo 3 Xbox 360 could be just what's needed to get them to jump off that fence right into Microsoft camp.