Success breeds complacency. Complacency breeds failure. Only the paranoid survive.
Many would consider that Microsoft was highly successful with the XB360. I feel that they became complacent due to the fact that they were not releasing tons of blockbuster hits towards the end of the generation. I also feel that they were leaning on the multiplatform games looking better on the XB360 instead of diversifying their portfolio of games. The biggest mistake that Microsoft made last generation was not creating stronger relationships with developers, especially Japanese developers, during a time when they took a large marketshare away from Sony.
I don't feel that it is a lack of graphics or framerate that is keeping Microsoft behind. I feel that Microsoft needs to branch out into different genres or at least create new IPs. So yes, I feel that they need to drop Halo and Gears of War so that they can ignite some passion into their 1st party studios. Bungie is a prime example of a studio that got burnt out on Halo and wanted to create something new and innovative. I understand that Killzone is not on the same level as Halo, but Guerilla Games seems to have dropped Killzone in place of Horizon: Zero Dawn. Microsoft should follow this example since Sony seems to be doing very well.
I am all for Microsoft keeping Halo and Gears around just like Nintendo does with Zelda and Mario; however, Microsoft needs a Donkey Kong, Star Fox, Kirby, Yoshi, etc etc to keep people interested. I just don't think Microsoft has the first party studios right now to compete. I think they need to provide something fresh and innovative to create that spark. If Microsoft continues on this path of complacency by pumping out the same franchishes, (Halo, Gears, and Forza), then they will only fail. With Halo, Forza, and Gears, they distinguish themselves from Nintendo and Sony; however, they don't distinguish themselves from THEMSELVES (XB360). THAT is what is killing the XB1. New IPs on a new console is key.