I think the heart of the matter, and the problem
Xbox has always struggled with, is that MS has never had a decent passion that created a secondary motive for being in the games industry.
Nintendo, Sony and Microsoft are all in it for the money first and foremost, there's no denying that, but with PlayStation being born as much out of Sony's music and entertainment arms as their tech manufacturing ones, and Nintendos background as toy makers, there's always been an underlying secondary objective with their products that MS simply lacks.
Sony wants to make entertainment and art, and is willing to make three failures for every fourth success because it understands that variety and a willingness to take risks for 'the next big thing' work just as well to sell an overall product as spending the same money on advertising, if not more so.
Nintendo knows the power of play, and that not every toy will sell as well as hoped, but that a toy that isn't fun to play with, just is not worth making. That simple feeling of joy carries them through a broader incompetence in many, many areas, that millions of people (myself included) are willing to forgive them for, because they really do, genuinely, want their customers to have fun and be happy.
Microsoft...Microsoft just wants your money. They want to sell you a product that will give them the most profit for their investment, and to keep you in their ecosystem, spending money there and not anywhere else. It's given us some incredibly quality of life improvements, I mean we wouldn't have online services that are as well implemented as we have today without MS, there's no denying that, but that really is all they care about.
And you see it in every facet of how they conduct business, from the games they choose to invest in, the deals they make, the trends they chase, the way they manage studios and develop games, and the way they market products to only the most wealthy, profitable and disposable income weilding markets and demographics. If it's not designed to make a profit, it's there to stop you giving money to someone else, and that's the extent of their ambitions.
Ironically though, that lack of passion and focus on money, just doesn't work in the entertainment business. It's the reason they consistently fail to make traction in the industry at large, see success only when direct competitors screw up, and end up sinking ungodly sums of money into investments that end up making them fall flat on their arses, because they simply don't have enough understanding of their potential audience to be able to accurately predict market trends.
They're not evil, they're not incompetent, and gods know Sony and Nintendo are just as capable of catastrophic misjudgements, but the fact is, Microsoft simply is not at home in the entertainment space, and it's really to their credit that they've stuck it out this long and had as much success as they had inspite of that.
But they are never going to be a perfect fit in the gaming industry, never have more wins than loses, and are never going to be able to truly understand and cater to the broader worldwide audiences that most game players are part of.
(Also, holy fuck did I just write a lot more than I initially expected to! Sorry for the wall of text there everyone!)