Microsoft, in the last few months, was the bad, bad guy of gaming. Its obscure, confusing and certainly anti-consumer DRM gained the rage of gamers. The fact the Xbone(how I will always call their new console) is more expensive, less focused on games, region locked and it comes with the Eye of Sauron AKA Kinect 2 didn't help it to gain consumer's trust.
During the few weeks after their reveal of the Xbone till yesterday, Microsoft defended that all their decisions would benefit the customer and would make everything better for us. They utterly failed to make this message being heard. Instead, they garnered more hate, and every time Microsoft executives(specially Don 'Chipmunk' Mattrick) opened their mouths they made their product seeing worse.
Here is the first thing. MS actually believed that their decisions would be more profitable to them. No company is there to be your friends (Sony, Nintendo and any other big company doesn't care about you, they care about money) but no company likes to lose a sale. MS probably expend a lot of time in meetings discussing how to make more profit, and of course they put in the equation how many customers they might lose due to their decisions. And in the end, they decided the Xbone and all its policies would be more profitable.
They likely decided their new target audience (hint, not us who like games a lot) would be more profitable and wouldn't mind all their restrictions. They also decided that us, people who love games, would buy an Xbone as long as great games were available only there. They also believed that Sony, the one that they likely consider their main rival, would use similar policies.
Let's not be naive here. 3rd party publishers probably was putting pressure on both Sony and MS for anti-used measures. Maybe they didn't give an ultimatum, but they certainly send messages on how they would benefit of it. MS decided it was worth to conquer the 3rd parties and made their system with them in mind.
On E3, they showed lots of good games, that actually would make many interested in giving MS a chance. All depended on Sony being similar in their proposition. Sony instead killed Microsoft at the show. No DRM, no always connected and a smaller price tag by not adding an accessory most wasn't interested. MS expected Sony to be similar enough to make everyone stop and think. Sony make it easy to most to choose. Or better yet, MS make their main competitor looks better by mostly just keeping the status quo.
Even after that, MS still believed their target audience would love them and would ignore their flaws. Until yesterday, they were adamant their DRM policy would benefit the customer. But them the pre-order numbers starts coming in. Sony was leading pre-order interest. An Amazon poll showed that 93% of customers where interested in the PS4 instead of the Xbone. GameStop employees said that MS put only 10 pre-order units per store, while Sony put 30. Even the mainstream media was aware and unhappy with their policies.
The internet complaining may not being the only factor that made MS change its policies. But it helped. That combined with bad PR, Sony policies being less draconian and the fact that they was becoming the bad guys at the public eyes made them do the now infamous U turn.
'Thanks for making our console looks better, Microsoft!'
While this is going to help the Xbone to sell a bit better at pre-orders, by making Xbox fans more happy with he console, the uphill battle will continue. MS needs to fix all the PR damage they made to themselves (gagging Don 'Big Mouth' would help) and they still need to prove to the public their machine is better than the PS4. It will be hard and long.
Even after the DRM drop, MS still have the most expensive machine, they still have the never-blinking Kinect 2 (it is up to you to thrust Microsoft will not spy on you, no matter how much they promise they won't) that must be connected all the times and we must remember if they could just flip the switch to turn DRM off (something they promised they couldn't do, so here is your thrust) they could just turn it on again later if they want to.
Microsoft did a good thing by dropping the DRM and the region lock. They reacted to the bad reception of its audience. But remember it was them that created the problem for themselves in first place and until yesterday they utterly believed they were right.
Microsoft made the first step to have a chance in the console wars. Now their machine is not an undesirable piece of shit, but a console many will take in consideration. But they are still in the uphill battle. They still need to fight against a lot of bad will they created in their possible customers. They still need to make their most expensive machine, Indie unfriendly, with a camera that needs to be connected all the time seems a better option than its competitor. Games can help that.
But for now, Microsoft and its Xbone is the underdog, and not the likable kind.