A chastened Microsoft on Tuesday announced two major changes in its Xbox strategy: It will offer a cheaper version of the Xbox One that eliminates the Kinect sensor, and will remove the Xbox Live Gold subscription requirement from most entertainment experiences on its consoles. The move comes as Xbox One continues to lose ground to the less expensive Sony PlayStation 4.

The new Xbox One version will become available on June 1 and will retail for $399, the same price as the PS4 and $100 less than the current Xbox One, which ships with a Kinect sensor. It will be 100 percent compatible with all existing Xbox One games, excluding Kinect titles of course, and entertainment apps. It will also support many of "the unique features of Xbox One including the ability to get game invites while you watch TV, switch between games and entertainment apps, enjoy Twitch broadcasts, and upload your favorite gaming moments," according to Microsoft.

As for the Xbox Live Gold changes, Microsoft has long charged its loyal Xbox customers a vig on the console's best apps and features through an annual subscription. If you want to watch movies on Netflix or Hulu Plus, for example, or even use Internet Explorer, on an Xbox 360 or Xbox One, you need to pay for Xbox Live Gold. As of June 1, however, that requirement is going away, and most Xbox 360 and Xbox One entertainment apps will no longer require a Gold subscription.

The moves both represent dramatic policy reversals and constitute an admission that Xbox One is not the market leader Microsoft had hoped for. According to the latest sales statistics, Sony has sold over 7 million PS4s consoles to consumers since its November 2013 launch, while Microsoft has sold over 5 million Xbox Ones into the retail channel; so the gap is in fact bigger than the 2 million figure indicated by those numbers.

"I'd love to be the market leader," Microsoft corporate vice president Yusuf Mehdi told The New York Times. "But it's early in the cycle." Microsoft had hoped that the March launch of "Titanfall" would help turn the tide, but when that didn't work, it started plotting a cheaper, Kinect-less Xbox One instead.

But Mehdi says he can explain the sales gap, reminding us that the PS4 is available in over 40 markets worldwide, while the Xbox One is currently sold in only 13 markets. He also told Forbes that "people have been more satisfied with the Xbox 360 than the PS3," the implication being that fewer Xbox 360 users have felt the need to upgrade to a newer console so far.

So how will Microsoft differentiate Xbox One now that it has removed the Kinect sensor from the console? Mr. Mehdi says that Xbox One still has several key advantages over PS4, including the best games lineup, a better online game experience with Xbox Live Gold-based matchmaking capabilities, better entertainment options including a unique, HDMI-based TV passthrough, and the ability to add an optional Kinect sensor later if you wish to upgrade.