Still... MMO is a problem. User generated content is a problem... regardless of what you think whether MS is invincible or not.
I don't see how user generated content is a problem. There's several very notable games that support some form of user-generated content: Guitar Hero World Tour/5, Forza 2/3, and Halo 3 (Forge) most notably.
There's been no killer app for it a la LBP, but I don't see it as a systemic problem with XBL.
Free online gaming, user generated content, alternate online models like MMO, larger downloadable PSN games.
Free, it has. User-generated content, see above. MMOs, yes they're more amenable to them but it's also widely known that Cryptic (Star Trek Online, Champions Online) and Turbine (undisclosed MMO) are working with Microsoft on launching MMOs on XBL "soon". It's a business issue, not a technical one. As for downloadable games, I don't think this is a checkbox argument anymore with the release of large games like Shadow Complex on XBLA.
Actually, Microsoft clearly borrowed elements from Home too. So pleeeeeeeese don't underestimate it. They may be forced to borrow more from Home in the future.
What exactly did they borrow from Home? Avatars are a direct ripoff of the Mii feature on the Wii, that's the only thing I could possibly think of...
Free is one of the most powerful benefits in marketing. Why should Sony hide behind it ? It is front and center to their online strategy. Your example above is flawed because you assumed satisfaction is a 1 or 0 attribute. It's not. Online gaming on PSN can be fun and free at the same time. It may lack some features but it is by and large functional. The fact that it didn't crash like XBL during the holiday season is also a plus.
The fact is it didn't crash like XBL during the holiday season because there wasn't near the scale of the demand on the XBL. By the way, XBL was fine the past holiday season. It was just the one where it went down due to insane demand levels, it's been rock solid ever since. Which, as I've discussed with you before, is more than I can say with the free Sony services on PSN (Home and the Store), which disconnect me early and often...even today when I was trying to download the NHL demo.
What joker's point is, I think, is that "free" is nice when it's a great service. The unfortunate thing, for Sony, is that they have a "free" service which, frankly, isn't that pleasant to work with. It's inconsistent, lacking features people deem basic, etc. There's definitely a market for that, but unfortunately it doesn't really match up with the (historical) price of the device. People who will use a free service instead of a better paid service could be considered "frugal", but this "frugal" customer would also be the person who would likely buy the 360 for $100 less than the PS3 to play largely the same game.
You could give me a free 720p HDTV that I'd accept and put somewhere, much like I've created my PSN account, but when I've got a 1080p TV that I paid a pretty penny for, I'll continue using it. Free is great, but only to people who cannot afford to spend money on their entertainment. While I appreciate that demographic (students, children, cash-strapped families, etc), it is
not a demographic I'd be gunning for with my business models.
If demo is a great sales tool, everyone would have done it without Microsoft forcing them to do so.
Demos are demonstrably and historically great sales tools. The problem is they cost money and time to make, which most developers can't do unless a gun is put to their heads. I don't buy games unless they have solid reputations or have a demo. Which means I don't think I've ever bought a PSN game, which is unfortunately as I've heard many of them are quite good. I just don't want to risk it. I can't sell it if I don't like it.