I agree with others who have said their best bet would be to build new/expand existing first parties to either create new IP or develop IP Microsoft already owns (BANJO/CONKER).
Realistically, I think its more likely they'll keep buying other's IP.
I do not think Titanfall is a great bet, because Microsoft already has the lock on good shooters. Silent Hill could fill a horror niche I guess.
Really, I think the focus would need to be on WRPG's, JRPG's or platformers. From a first party perspective, both Sony and MS are underserved by platformers - Sea of Thieves might change this.
The problem with WRPG's is whether there is room for great first party offerings. Fable will try, but seems to be moving away traditional RPG's. Horizon might finally represent an entry into this space for Sony, depending on whether GG can make a better RPG than they can a shooter. But third parties just have such great, high quality offerings. The Witcher, Mass Effect, The Elder Scrolls and Borderlands pretty much fills up the WRPG roster.
JRPG's Sony has a clear advantage, so Microsoft could benefit from reviving old IP (especially Lost Odyssey) or funding new initiatives. But even then, the importance of this genre has just shrunk so much in light of Japan's greatly reduced home console purchases. What's left is pretty well covered off by FF, KH and Tales.
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