Microsoft's most egregious error is that they thought more Halo and Gears would sustain them forever. They stayed pat with their hand while everyone else kept drawing more cards.
Granted, they might have believed Quantum Break would become the 4th Pillar but you can't put all your eggs in one basket like that. One of the things I like about Sony in the home console space is that they keep pushing new IP out into the wild.
Finding the games that will define your brand is a continuous process, not a destination that you can reach and then stop working.