Here's a fancy vocabulary word from E3 this year: "bifurcation." That's how Sony's John Koller, VP of Marketing for Home Console and Handheld Platforms, describes the current state of the gaming industry. Microsoft and Sony's paths are finally diverging — Nintendo, of course, has been veering away for years. According to John, the "battle for the living room was in 2006, and we've totally moved beyond that." Sony is now putting an emphasis on mobile and, well, video games. But is it moving beyond, or ceding the fight?

I spoke to Avi Greengart, an analyst at Current Analysis, before Microsoft's press conference on Monday, who said "Sony and Microsoft need to tie their consoles into phones and tablets or Apple will start eating away at their market share." Apple's burgeoning iOS ecosystem has already made a huge dent in mobile gaming, and that $99 Apple TV could turn into the living room's next big threat.

It turns out, Microsoft is ready for the challenge. At E3 on Monday it unveiled Xbox SmartGlass, which augments gameplay and movie watching with extra information or interaction on your tablet or phone. The best part is that SmartGlass works with Android and iOS devices, not just Windows Phone and Windows 8 tablets. It's probably the biggest announcement this year at a tradeshow that's ostensibly about video games.

Sony doesn't have an answer for SmartGlass, and after years of hammering home its excellence in the living room. "Our focus is that we're really going after gaming," says John. Because Sony has to prop up its struggling Vita platform, Sony's limiting the PlayStation 3's second screen activities to that device, instead of one you might already have in your pocket or bag. Similarly, Nintendo is betting it all on the Wii U tablet controller. Microsoft decided to play all angles, because it's fighting the bigger fight.

As a gamer, I actually much preferred Sony's press conference this year to Microsoft's. Microsoft brought the future of the living room, but Sony brought the future of games. Quantic Dreams, the creator of Heavy Rain, showed Beyond, which stars Ellen Page and contemplates themes like "death" and "souls" and "really beautiful video sequences." Naughty Dog, the creators of Uncharted, demonstrated gameplay from The Last of Us, which makes you rethink everything about "survival" and "shooting bad guys." Neither game looks cheap, simple, or a sure thing.

Microsoft showed Halo 4, which is the very definition of a sure thing — the original developer of Halo, Bungie, has moved on from the franchise, so Microsoft built a whole new studio to keep the Halo brand alive. Other keynote tentpoles included Call of Duty Black Ops 2, Splinter Cell: Blacklist, and Gears of War: Retribution. These are games that will be doing billions of dollars in sales, but they offer little innovation. Killing people in Splinter Cell is described as "moving smoothly through the environment" while taking out "targets" quickly and efficiently. The best way to kill people is offered as a feature set, like which laptop has more gigahertz or gigabytes.

Not that Sony is above cashing in on sequels and delivering efficiencies in destruction — God of War just got its umpteenth gruesome edition. But ultimately, Microsoft seems to approach the game industry like a consumer electronics company, and Sony approaches the game industry like a gaming company. Microsoft "partnered" with Mojang to get Minecraft on Xbox, which is now Xbox Live Arcade's number one downloaded title of all time. Sony built the beautiful, thoughtful Journey, its new top download, all by itself.

The battle for the living room in 2006 was fought over Blu-ray and HD-DVD, and Sony won. Then there were streaming services, and Sony won that too. The PS3 is now the world's defacto Blu-ray player, the number one Netflix device, it has NFL games (if you can afford them), a mature video service, and supports your 3D TV. But after decades of ruling the living room, Sony seems to be having trouble seeing what the next step is.

John's line was that we live "80% of our lives outside the home," as an excuse for Sony pinning its hopes to the Vita, the PlayStation Mobile platform, and Xperia phones. But most of us have already figured out how to keep ourselves entertained outside the home — here's a hint: it doesn't involve Sony products — and now we're ready to bring those experiences back to the living room. 2012's definition of home entertainment is "integration," not exclusivity.

While Microsoft has given its Xbox unit the freedom to explore this with whatever partners it chooses, PlayStation has to fulfill "global directives," as John calls them, like the union of Sony's corporate divisions and the continued proliferation of 3D. PlayStation is "working closely with Sony Mobile," said Jack Tretton in his E3 keynote, which says it all about what his PlayStation team is up against in a systemically fragmented company.

PlayStation Mobile (formerly PlayStation Suite) has been an abject failure, as John almost freely admits: "Your experience on Xperia is one we don't want to replicate, we need content." Sony's whole problem with PlayStation Suite was that it didn't know how to play nice with others — there are only a handful of games available, and the partnership with HTC took more than a year to gestate. Microsoft can afford to play nice with everybody because it wants to sell you a glorified cable box, not the TV, speakers, Blu-ray player, phone and tablet to go along with it.

In the game world, where the topic of "casual" vs "hardcore" gaming is still a hot-button issue, Microsoft has side-stepped and pulled its chips off the table: it's just mainstream. When Microsoft and Sony built Kinect and Move, respectively, to compete with the then-dominant Wii, they were both making a casual play. When the backlash came a year later, as hardcore gamers felt like they were being abandoned, Sony was quick to shore up that fanbase, but Microsoft kept it casual.

"Move's been a very interesting platform to us," said John, with a slight hesitation before the word "interesting." It turns out Move has indeed done well with Sony's core fans, those PS3 diehards that have been there from the start, but it hasn't expanded the PS3's market share. That's why this year Sony's only on-stage demonstration of Move was Wonderbook, which is a desperation play for the families the PS3 sorely lacks.

"We love the fact that we're considered to be for the core," John told me. But... "At the same time, the Move controller is a means to break down the accessibility problems," which is another way to say it hasn't.

Meanwhile, almost every big game Microsoft showed this year involved Kinect in some way (typically as a glorified microphone, at least in the case of "hardcore" games like Splinter Cell). After succeeding wildly getting Kinect into the living room, Microsoft now has the luxury of pleasing all camps.

There are dangers in courting the mainstream, of course. There's little loyalty. Nintendo's fortunes have taken a nose dive after its record successes: Nintendo earned less money this year than it did the year before it released the Wii. If the Xbox can't make itself indispensable, and loses a core fanbase, it could face similar struggles. "You're never going to feel emotional towards your cable box," as Polygon editor Justin McElroy pointed out to me.

But for now, Microsoft seems on the right track, while Sony seems to be fading. I don't mind Sony's dedication to my tastes in video games — my living room functions just fine, thank you — but idealism only gets you so far. Just ask Sega.