Microsoft’s XBox One is in a far more dire situation than people realize. Why? In a word, demand. That and the fact that the developer community is already talking out loud about it not surviving.

The reasons for Microsoft’s predicament are quite clear, they botched the XBox one like SemiAccurate said almost a year ago. We detailed why it would lose to the PS4, mainly because Microsoft architected an anti-user revenue stream rather than a gaming console. Management didn’t care about gaming, it makes them almost no revenue compared to the rest of the console so they ceded gaming to Sony and the PS4.

In short they made a nickel-and-dime you to death box that is second best at everything other than retail price. Their purported killer app, Kinect, is one that users are at best apathetic towards, few devs support, and everyone resents the price. And for some odd reason gamers are staying away from the XBox in droves. There are various sales numbers floating, usually leaks by Microsoft sanctioned sources that give a very small slice of the picture, and usually one that paints a rosy view for Microsoft. This is a time-honored PR tactic called palpable desperation.

Worse yet Microsoft has decided to cut the price of the XBox One in England, so far, and do so in conjunction with the release of Titanfall, their hotly anticipated new game. If a console is not doing well, the idea is to release a blockbuster title to kick up the media buzz and jumpstart sales. In short you can cut the price to entice customers or do so with a hot product, doing both is a red flag of failure. Microsoft did both.

Why are we so down on the XBox One? As SemiAccurate exclusively revealed last April, Sony’s PS4 pummels it silly in terms of hardware for gaming. It isn’t a nuance thing either, the difference is 50% in raw hardware specs and the architectures surrounding that magnify the disparity. In early games available on both system, the performance differential is clearly visible to an untrained observer, the PS4 just looks better. As the tools develop and the hardware is pushed to the limit, this gap will only grow, Sony did right, Microsoft went for greed and fluff.

This has led to a rather foregone situation where the PS4 is the development target for almost everyone and the XBox One is the lowest common denominator port. In the last generation of consoles the situation was completely reversed for the first few years. Until Sony fixed their abysmal tool situation, the PS3 was on the brink of irrelevance and failure despite superior hardware. Sony did clean up their act and the developer mindset did shift a bit, enough for the PS3’s hardware to shine.

With the PS4 and the XBox One, the situation is far worse for Microsoft. They are the port target so they will get the worst of both worlds. On top of this their hardware is unquestionably inferior to that of Sony’s console, it isn’t close. Tools, a traditional Microsoft strong point are said to be pretty bad on the PS4 but abysmal and miserable on the XBox One. It isn’t a case of good vs bad, it is bad vs borderline unacceptable.

Then again if you look at the architecture of the XBox One, Parts 1, 2, 3, 4, and 5, it is easy to see why their tools are a mess. Both Sony and Microsoft started out with a clean AMD based design meant for gaming, and Sony productized it without major changes. Microsoft decided to make spaghetti and add everything including the kitchen sink, engineering by management fiat is always a bad idea. The sheer amount of dark functionality that is both not on those diagrams and fused off for marketing reasons in the XBox One is stunning, Microsoft product managers should be fired for that alone.

So worse tools, worse hardware, significantly higher price, and nothing done better than the PS4 has left Microsoft in a pickle. SemiAccurate sources with early access to numbers and projections from Microsoft were openly questioning the XBox One’s long-term viability last year, then the game developers started chiming in with similar whispers. Nothing concrete, just serious unease and questions over resource utilization.

If a game takes 18-24 months and tens of millions of dollars to make, is it worth it to target the XBox One at this point? The magic 8-ball of capital planning is coming back with “situation unclear, go have a few drinks because this could be a résumé generating decision“. All it takes is a few naysayers at this point to notably dry up the content pipeline for 2015, about the time when the “new and shiny” halo wears olf of both consoles. Don’t discount the peril from this one, Microsoft is in deep trouble.

Then there is the last and most damning figure, one that the grumbles lead SemiAccurate to. We heard how bad sales were long before post-holiday numbers started spinning forth hither and yonder. Nothing definitive mind you, just the general notion that the PS4 was pummeling the XBox One in the sales race just like we said it would. That said we wanted real numbers so we dug deep.

Note: The following is for professional and student level subscribers.

Disclosures: Charlie Demerjian and Stone Arch Networking Services, Inc. have no consulting relationships, investment relationships, or hold any investment positions with any of the companies mentioned in this report.