In a revealing interview, former Microsoft Game Studios Europe creative director Peter Molyneux said the Xbox team is constantly watching Sony, and aired his fears for the platform holder's future.
When asked by GamesIndustry whether the Xbox team keeps an eye on what its primary rival PlayStation platform is doing, Molyneux said "Yes, very much so. Obsessively so."
Praising Sony's focus on first-party development, Molyneux said Microsoft was right to showcase its own games so strongly during E3 2012.
"I thought it was a very smart move on their behalf to focus on demos. And actually, I thought EA's line, 'You're going to see ten great demos from ten great developers,' you could have said the same for Microsoft," he said.
That said, the former Lionhead boss said he was surprised how few Kinect games were shown, and said Microsoft needs to focus on innovation.
"I would hope the next generation would bring about a new wave of innovation. If we don't do that in consoles, then you will find that those people that want innovation will start retreating to other formats. Look at the PC. It's incredible to me how there's been a resurgence in PC gaming. There's a lot more innovation now," he said.
"I think that's the other thing about the Microsoft press conference. It's always shocked me about how little Microsoft cared about the Windows platform. There was hardly a single talk about Windows 8 at all. You would've thought, with a billion installed machines, there would be at least some play. And the whole metro interface is much more gamified, but there was no talk about it at all."
But Molyneux doesn't feel other platforms have done much better than Microsoft in that regard.
"It's going to be an interesting problem for all the console manufacturers I think. It's because so much computer entertainment, is spreading and diversifying over so many different platforms," he said.
"They no longer have the luxury of keeping us all funneled into these consoles. A whole lot of manufacturers in the industry have been in a luxurious position for so long, where they could restrict the entertainment content to the masses.
"They did a very good job of squeezing the PC out and making this just about three formats and now it feels like it's sand dripping through their fingers. It's escaping from them," he concluded.
The whole interview, available through the link above, is well worth a read and includes some discussion of Molyneux's jump to indie outfit 22 Cans.