Question: "What was the main reason Microsoft could not compete?"  Context: "While the original Xbox sold poorly in Japan, selling just 2 million units while it was on the market (between 2002 and 2005),[citation needed] the Xbox 360 sold even more poorly, selling only 1.5 million units from 2005 to 2011. Edge magazine reported in August 2011 that initially lackluster and subsequently falling sales in Japan, where Microsoft had been unable to make serious inroads into the dominance of domestic rivals Sony and Nintendo, had led to retailers scaling down and in some cases discontinuing sales of the Xbox 360 completely."  Answer:
dominance of domestic rivals Sony and Nintendo