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Nothing went wrong with their strategy, they had no strategy to begin with.

It felt like they just released a console because they thought they had to do it to maintain a presence in the market. I think they see their future swinging back to being a software only company. Not sure I am happy about that either as most the acquisitions they made since the original xbox days has seen lackluster efforts to establish them franchise as mainstream and on going.

Reminds me of the Nokia days when Apple come in, they just kept doing their thing as they thought nothing would knock them out. If Nokia jumped on android as soon as that come out, they probably still be in the game as the leading phone maker.