At the initial stage, it hurt a bit that Microsoft decided against making exclusives for the Xbox Series. It isn't the dealbreaker though, because the biggest chunk of the market doesn't want to mess with a PC.
What hurt more early on was that Microsoft couldn't deliver on their notable IPs like Halo and Forza, both launching to disappointment. The rate at which Microsoft released games wasn't good either, so they didn't have an answer for what makes the Xbox Series a better purchase than the very comparable PS5. But Microsoft lucked out and could benefit from the semiconductor shortages to buy themselves more time to get the software for the Xbox series right. Sony couldn't produce enough PS5s, so some intended purchases inevitably went to XS. But... Microsoft didn't get it right the second time either.
It's at that stage that Spencer's acquisition spree of major publishers began to haunt Xbox. The question became, "If Microsoft spent so much money on studios and IPs, yet at the same time sells so few consoles, how is this ever going to pay off?" So the whole operation went from backbreaking to neckbreaking when Microsoft started to really branch out to other consoles. This is why the closing question of the OP is simply the wrong question to ask. At this point in time Microsoft has no intent anymore to make Xbox hardware sales more competitive; they are basically already in a transition period from console manufacturer to third party publisher where their whole strategic setup will kill Xbox as a hardware platform eventually. But because the people at Microsoft lack the foresight of where they are going and where they want to go, they'll likely put out a fifth-generation Xbox despite further decline in sales being a foregone conclusion.
Legend11 correctly predicted that GTA IV will outsell Super Smash Bros. Brawl. I was wrong.
