I was listening to a podcast this morning on the way to work, when I had an epiphany. It became clear to me that Nintendo knows exactly what they are doing with the Revolution, and that it will succeed in the next-generation race. As a matter of fact, it will be Microsoft’s main rival in the next-gen sweeps, not Sony.

It is clear – software is the primary driver of game consoles, which is why the PS2 is the greatest console ever. And although Sony is promising all the bells and whistles in the world, it will be the strength of its software which will lead the PS3 toward the next-gen crown. That’s right – Microsoft’s early lead with the Xbox 360 won’t mean anything, as the PS3 will be about even in worldwide numbers by Fall of 2007. And yes, these are worldwide predictions. In terms of the US console race, it will mirror the current generation closely, with the Revolution picking up numbers and being much more competitive.

Saying these are worldwide predictions might reduce the impact of these predictions, because of course the Xbox 360 will only improve marginally in Japan while getting steamrolled by its competition, much like the current generation. The real surprise will be Nintendo, coming from literally nowhere, to save face as a console manufacturer. And it won’t be because of the controller, although like the DS it will be somewhat of a differentiating factor from its competitors to warrant someone to buy it as a second console.

Am I crazy? Well, let me ask – of the three consoles, what is the single factor each company is trumpeting as its main selling point? Easy. For the Xbox 360, it is Xbox Live. For the PS3, it is the graphics. For the Revolution, it is the controller, right? Well, only part right. It is also the ability to play the entire catalog of Nintendo-published titles, dating back to the original NES console.

Now we’re getting somewhere. Let me ask you this – what has been the most impressive function of the Xbox 360? It’s graphics? They’re good, but not a leap from the current Xbox. Xbox Live? Close – the marketplace features are a nice improvement from current generation. But what is the one thing that everyone is talking about? Let me give you a hint – Geometry Wars. It is a simple game that stole the thunder from the major launch titles. And it was only available from Xbox Live Arcade. There’s the golden apple.

Xbox Live Arcade has caught fire from the gaming community, both with consumers and with developers. Xbox 360 owners have purchased on average four XBL Arcade titles. More are on the way, including the announcement Street Fighter II Hyper Fighting will be made available exclusively on Xbox Live Arcade this spring. It is the killer feature that has Sony scrambling. And, the Revolution will have it, too – a similar service for downloading games. Touche, Microsoft!

In addition to Nintendo’s entire back catalog, Sega has also expressed interest in making its classic titles available on Revolution’s game service. Granted, Sega was also one of the companies listed to support XBL Arcade, but the fact that it will also be supporting the Revolution makes that console all the more stronger. And as other companies ramp up support for XBL Arcade with their classic titles, you can be sure there will be divisions created to support this type of game distribution and will make itself available to any console manufacturer which offers such a service. Enter Microsoft and Nintendo. Exit Sony.

Sony has lagged with support for an online gaming infrastructure, and it was beat up pretty hard after it announced the PS3 without any online service. Recent surveys from Sony indicate it is interested in keeping with the current online model used by PS2 titles – that is, decentralized, managed and controlled by the individual game publishers, and difficult to maintain any kind of consistent or organized online experience. As the PS3 is only months away from launch, these surveys only indicate what Sony may be willing to do in the future, not what they are ready to do now.

Saying all that, Sony’s strength will still be its partnerships with major game publishers. Plus, with a combined user base of over 100 million consoles sold between the PSOne and PS2, people will be hesitant to move away from a platform with which they’ve invested over ten years of their time and money. The PS3 will undoubtedly succeed initially, but will be hurt in the long run by not having an online infrastructure to compete against Nintendo and Microsoft.

The real battle will be between the Microsoft Xbox and the Nintendo Revolution. In Japan, it will be no contest – the Revolution will win hands down, and will even challenge Sony for the top spot. Worldwide, the battle between Revolution’s innovation and Xbox 360’s heavy line-up of Western game support will polarize consumers. The race will come down to which line-up of downloadable games is stronger. Will it be Nintendo’s back catalog of games, along with support from other publishers each making available their classic gaming titles? Or will it be Microsoft’s strong ties with independent publishers and new titles developed by major publishers for the XBL Arcade service? Will Microsoft’s niche be to create a virtual MAME, in order to combat Nintendo’s army of classic console games? Time will tell, but I give the edge to Nintendo. After all, what would you rather be playing, Joust or Super Mario Bros.? Smash TV or Earthbound? Gauntlet or Zelda? I think you get the picture.

Nintendo will appear to be uncharacteristically aggressive in the next-generation console war, only because publishers will be throwing themselves with support for the Revolution, realizing the gaming giant has finally emerged from its slumber. Sony’s software support will be strong initially, but as this shift occurs, they will try to influence publishers with their giant wallet. Nintendo’s leverage will be their momentum, and as a result will not let any feasible opportunity to sink the competition pass by. This is where Nintendo’s aggressive behavior will come into play, and as a result there will be a lot more exclusive third-party titles making appearances on Nintendo hardware this time around. Or at least a lot less exclusive third-party titles on Sony hardware.

And where will Microsoft fit? They will battle Sony for Western supremacy, while jockeying Nintendo in the content distribution wars worldwide, and staying afloat in Japan thanks to more cross-platform development and droves of developers leaving Sony for more fertile console land. They will probably have comparable sales with the Revolution in terms of the worldwide market, as I said before people will initially buy a PS3, and then either an Xbox 360 or Revolution as their second console. Thus, Microsoft will gain ground on Sony but lose ground to Nintendo, resulting in about the same showing as in the current-generation race.

One thing is for sure – there will be a change in the landscape for hardware and software during the next generation of gaming. As with the old saying, “it’s not how you start but how you finish”, it will seem like business as usual early on, but at the end things will look much different.