Microsoft entered the console business primarily "to stop Sony," Joachim Kempin, former vice president of Windows Sales at Microsoft told IGN.
"Sony was always very arm's length with Microsoft," Kempin said. "Yeah, they bought Windows for their PCs but when you really take a hard look at that, they were never Microsoft's friend. And Microsoft in a way wanted them to be a friend because they knew they had a lot of things we could have cooperated on because they are, in a way, an entertainment company, you know? I mean, at least a portion of Sony is and they had some really good things going there, but as soon as they came out with a video console, Microsoft just looked at that and said 'well, we have to beat them, so let's do our own.'"
According to Kempin, Microsoft wanted to ensure that Sony didn't achieve the kind of dominance in the living room that Microsoft did in the PC sphere.
He also said that it was his job to try and find a PC manufacturer to build the new console, but that his search was in vain. In response, Microsoft had to figure out manufacturing itself and based its profit model on what it had learned from observing Sony.
"The [manufacturers] were smart enough not to bite, because they studied the Sony model and saw that Sony could not make money on that hardware model, ever," he said. "So they supplemented it with software royalties, and Microsoft copied that model."