After a year of blundering with its Xbox one game console, Microsoft (NASDAQ: MSFT  ) at last figured out how to beat Sony  (NYSE: SNE  ) and its Playstation 4.

The organization saw a few sales achievement when it dropped the Kinect motion sensor in June, which permitted it to match its competitor’s base cost of $399. Microsoft made things a stride further this Christmas season by bringing down the cost for the Xbox One again to $349. That price dropped to $329 on Black Friday, and the overall value was considerably higher as the lower-priced consoles were likewise sold in packs with adored games, headsets, and other goodies.

It was a striking tactic for Microsoft – offer consoles at a loss to gain market share – however its one that obviously met expectations. While the last numbers are not in for Dec, Xbox One beat Ps4 in Nov, and looks to have done so through the end of the Christmas shopping season.

Microsoft, which can unquestionably bear to sponsor gadget sales, discovered a winning tactic and went far to demonstrating that cost was the integral component for most of buyers when it came to purchasing a next generation console. Thus, obviously, with the holidays over and crest shopping season behind us, the organization has dropped the $349 promotion and, as of January. 3, raised the price of the Xbox One once again to $399.

That is an inquisitive move, one that could stop Xbox One’s mounting thrust and permit Sony, which because of battles in other divisions can’t manage the price war with Microsoft, to stay in the competition. Microsoft could have outlayed its opponent – well, if not into irrelevancy, at least into less relevancy, however it decided to pull back. The way to triumph was there, yet Satya Nadella and company decided to not walk it.

Not learning from history

At the point when both companies launch their new consoles in November, 2013, they took diverse methodologies. Sony paid attention on gameplay, while Microsoft spent a great part of the extravagant Xbox One launch press conference showcasing how the console was an excitement center for the home, not simply a gaming framework. The Kinect was key to that method. Microsoft however that purchasers would be ready to pay an additional $100 for the capacity to control their TVs with hand motions and the other hazily cool things the motion sensor permitted.

They weren’t.

From launch, PS4 outperformed Xbox One, and while neither organization frequently reports sales figures, Sony basically sold two of its gadgets for each one Microsoft moved. In the good old days, you could figure that cost was an element – particularly when prestigious game exclusives, including Electronic Arts’  (NASDAQ: EA) Titanfall, neglected to put Microsoft on top – however it wasn’t confirmed.

At the point when Kinect was dropped and Xbox One brought down its cost to match Sony’s, though, Microsoft attracted closer in monthly sales. When the cost was cut further starting in November, Xbox One started to beat Ps4, maybe practically.

Now it appears to be conclusively demonstrated that pricing matters most, yet Microsoft has decided to surrender its benefit and returned to $399. It’s tricky to perceive how that won’t bring about a sales slowdown and gains for Sony.

Microsoft can fix this

While the cut had dependably been publicized as being momentary, its victory ought to have prompted a new, lasting lower cost. Although if you presume Microsoft consumed the whole $50 cut on every gadget sold, that cash is insignificant if the organization can make its console the market pioneer.

If Microsoft gets a 30% cut of any digital downloads from its Xbox Live store, $50 would be recovered after three premium ($59.99) game sales. Utilize the same figure for its cut of a membership service – maybe WWE’s system  ($9.99 a month) – and the shortfall goes away in 17 months.

Yet, obviously, few if any Xbox holders will just purchase three games or utilize the console as a committed player for one membership service. Putting a Xbox One in a home basically makes a small scale store in that individual’s living room. This was precious for the past console era, however it has gotten to be exponentially more significant now that games are progressively sold through downloads, and the quantity of paid applications, services, and other approaches to use cash from a console have blasted.

Microsoft is committing an error here, yet its a simple one to settle. Make the $349 cut permanent and Sony either needs to pursue, which it will be unable to bear to do, or danger falling behind.

Price matters most, and a $349 Xbox One has an opportunity to turn into the apparent console pioneer, while a $399 Xbox can at best hope would like to be a nearby number two.