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What Microsoft should do is make a console equivalent of a steam deck, as in, a standardized console with a simplified Windows called Xbox OS. The upcoming Strix Halo chip could be a good starting point for this, though of course Microsoft could also ask for a more custom-built part for their machines.

As such, it would be a PC, but strictly for gaming and without all the baggage it would need for productivity tasks. This could then be licensed to OEMs like MSI or ASUS to make their own Xbox devices if they'd want to.

And of course, It should be possible to install a regular Windows OS on those if Xbox OS would be too limiting for the users down the line.