Who did it: Sony
To many, XBox Live was the gold standard (do you see what we did there? Gold, like a gold account) when it came to online gaming.
The PSN just never came close. But the nail was put in the coffin for many when the Playstation network was shut down after it was found out that many people's accounts had been compromised. Sony shut down its network because of hackers.
This is besides the point that an XBox Live Gold account cost money, while PSN's regular service was free. People were irate and didn't trust Sony for a long time after that. The company has since made PSN better than ever, especially if you have a plus account, where they give you free games aplenty. But people to this day feel that Microsoft offers a better service.
We'll see how that all pans out with this next console generation, though...