While the Xbox 360 is expected to have a 5 million unit lead on the PS3 in 2006, it is estimated to drop to 500,000 in 2007, and be eclipsed by 2.5 million units in 2008.

The market research firm estimates Nintendo's Revolution to sell three million units by 2008.

It adds that the PS3 and Revolution will debut in late 2006. Sony previously said that the Playstation 3 will drop in spring 2006, but did not specify which territory would see the PS2 successor first.

Sony has traditionally launched Playstation consoles in Japan during the spring, followed by the U.S. in the fall.

Nintendo has said that the Revolution will drop sometime in 2006.

Microsoft will command an early lead with Xbox 360 this holiday season with a global launch in North America, Europe, and Japan. The company hopes that the retail momentum will sustain to help the company lead unit sales in the next-generation console war.

Overall, Piper Jaffray expects video game software to grow from $7B in 2005 to $10B in 2008.