It's so hard to tell where they went wrong. But, I think they let the whole power issue drive them nuts this gen, to the point where they overshot the specs for their upgrade and, well, overestimated the market in comparison. Phil Spencer is a man who paid attention to social media and message board chatter about his division, and it kind of became an undoing. Having to match their competitors step by step, or trying to outdo them with PR moves led them to this point. Trying to convince people that weren't buying their consoles, and customers that were lukewarm on their exclusives, to buy a new console from them at double the price to improve their experience.
All that's fine to try and keep your customers happy and bring attention to your product, but now they've painted themselves in a corner. They've basically made a Steambox that ONLY plays Xbox games. It's a higher spec walled garden with a casual-unfriendly price. Maybe they've priced themselves out of the game, but, I've been wrong about these things before.
They ended up envying Sony's multiplat position, so they backed off the prospect of first party exclusives and doubled down on new hardware. Anyway, maybe it's not as bad as it seems, but I'm failing to see the silver lining right now.
