I have replied separately to the rest of your comments, and now will reply just to your 'non-potshot'.

You appear to have misunderstood Mehdi's comments in that article you linked to (in fairness, the article's author may have misunderstood them as well).  Mehdi suggested the entire market was about 300 million units, and with normal 30% growth that the entire market would grow to 400 million units.  He then suggested that the entire market might grow to a billion units if game consoles take off as set-top-box replacements, not that the Xbox One would sell a billion units.  100% of Mehdi's math appears to be discussing the entire home console market, none of it appears to be predicting Xbox One sales (just the size of the market that the Xbox One's opportunity may lie within).

I also disagree with you that Mehdi's comments about Microsoft's strategy then have any relevance to their strategy now.  Then they saw game consoles morphing into premium priced all-in-one media boxes (PS was also increasing their media capabilities in the timeframe that he was making his comments, though they promoted it far less than Microsoft did).  While both PS and Xbox have significant media capabilities, they're now doubling-down on marketing consoles primary as gaming machines.  In Microsoft's case, they see the growth opportunity as a combination of lower introductory prices and game streaming to consoles.  Other than speaking about each as opportunities to grow the market, I don't see any similarity in the strategy then vs. now.

Ah so maybe its on a game to game basis then. Because even when I played Xbox One a lot of games close to the end of the generation required large internet downloads for the game to be played. So not every game had data on disk or can be played without a internet download but like you mentioned Flight Sim and DMC5 are examples of games that come with he full package on disc.

Unfortunately there's some truth to it.

XBSS is only the beginning of entry models.

Soon enough it'll be $99 for the XBSY console.

As in, 'why would you expect anything in the box?'

Comes with barebones streaming hardware, and a controller.

Smallest console ever. Best selling console, ever. You heard it here first.

For sure, anyone with a good gaming PC doesn't need a console.  Traditionally consoles were simpler to set up and use, and were cheaper to purchase.  Yet PC gaming offered top-tier performance, and cheaper games.  So for anyone open to both consoles and PC, it was a debate between cheaper hardware vs. cheaper software, with exclusives being a wildcard as that forced you to buy certain hardware.

These days hardly anything is truly exclusive anymore if you're a PC gamer, as PC gets pretty much everything (immediately with Microsoft, a little later on with Sony, and eventually with Nintendo even if only via emulation).  So for anyone comfortable with the PC side of things, that's an advantage for the PC.

For me, despite all that, I went Xbox this generation.  Why?  Because the Series S was just so damn powerful, and so damn cheap.  No gaming PC for the same price as the Series S could come even close to its capability.  And the huge software cost advantage for PC is largely mitigated by the fact that I'm completely content with Game Pass so far since it came out.  Game Pass Ultimate gives me Games With Gold, Xbox Game Pass, and EA Play.  That combo has been enough for me to stop buying games entirely.  Yes, it would be even cheaper if I went with PC Game Pass (which also includes EA Play), but the hardware cost would be a LOT higher while the software subscription cost would be only moderately cheaper.

So bringing this back on topic, I think Game Pass being so darn inexpensive is an advantage in some price-sensitive markets.  Though, admittedly, only the markets that are both price sensitive and have reasonably priced home internet, as some have sensibly pointed out.

You could well be right.  You could, in fact, be so right that it invalidates the premise of the thread.

Or maybe the best-selling consoles of all time will be a smart TVs with Game Pass streaming apps in them, if enough people sign up that way.

Correct, the base (VCR) Xbox One, the PS4, and the PS4 Pro can only read BD discs up to 50 GB.  Only the PS5, the One S, the One X, and the Series X can read larger than 50 GB BD discs.  The One S and One X were upgraded past the 50 GB limit kind of by accident, they were actually upgraded to read UHD movie discs, and the ability to read larger data discs is just a happy accident.  But one they can't take advantage of while also having the disc readable in the base Xbox One.  Sony elected not to do that upgrade, not even for the PS4 Pro, until the PS5.

But as previously mentioned, even if the entire game is on the disc at launch, patches/upgrades over time will render more and more of the data on the disc irrelevant anyway.  And you usually can't play the game (at least not while online, and especially not for multiplayer) without installing all the updates first.

I don't see much advantage to separate Xbox One and Series X versions of games at retail, when developers regularly keep updating/patching the game after release, often for years.  I mean, even if the launch version of a game like R6: Siege is entirely on the disc, the current version of the game bears very little resemblance to it.  Perhaps the one and only time having the entire game on disc is actually valuable from a game preservation point of view would be an anniversary/GotY version where the game is pretty much end-of-life from a software development point of view, that disc might be playable for the long-term without reams of downloads.

If the game can even fit on any disc, given UHD discs top out at about 100 GB, and there are more than a few games that are 100+ GB.  I guess you could put multiple discs in the collection, but that drives up costs (less so for the discs, actually, moreso for the packaging) and isn't a common or popular option with publishers anymore.

Back on topic.  As more gamers go all-digital, and especially as game streaming becomes more of a thing, the small size and low cost of the Series S suddenly makes a lot more sense.  When I stream a game to my Series S, I'm streaming the Series X version of the game.  Generally the Series X version in performance mode, as it's limited to 1080p@60, mind you, and with some compression artifacting.  But that's pretty cool, and that experience will probably improve over time.  Presuming good latency, I can see the day where streaming the game to a Series S offers higher fidelity than playing the game locally.  Then there's the wildcard of AI-enhanced upscaling.  All of the above lends itself to Phil Spencer's comments that the Series X will sell better initially, but that the Series S will sell better over time.

I agree that a digital-only console won't be popular in places where internet isn't reliable, is costly, or doesn't exist.

That said, a miniscule portion of a 1.4 billion person population might still do more to move the needle on global console sales than, say, Canada or Australia does.

I'm not sure what $400 game console you're referring to in a discussion about the Series S, though.  It's $300 USD (generally the default "$" is the USD, unless specified otherwise).

Fair enough that mobile devices will be preferable in some areas, no question.  And I agree with you.  Right now Microsoft has Ultimate which has three components (Xbox, PC, and streaming).  But below Ultimate they only have two options, Xbox-only pricing or PC-only pricing.  The obvious missing piece is a streaming-only pricing option.  I expect this to come if and when xCloud streaming exits beta, though.

At that point there are new variables such as xCloud streaming apps in smart TVs.  So I agree with you that Microsoft isn't even playing the same game as Sony and Nintendo.  I 100% agree.

But they're still making consoles, and they made the Series S as a priced-to-move console.  Adjusted for inflation, have we ever had a competitive next-gen console launch as cheap as the Series S?  Certainly not something as capable as it is.  And it has the advantage that it's set up for streaming (which reduces the amount of on-board storage it needs), while still being able to store games locally (for places that might have cheap/decent enough internet, but it's not as reliable as it could be) so it's kind of hedging its bets as to whether it'll be used primarily for streaming, primarily for on-board storage, or for a healthy mix of the two.  And when you're talking bigger markets like India and Brazil, even a small increase in the size of the markets might end up moving more dedicated home consoles than a country like Japan (where handhelds are now dominant instead) or a country like Canada or Australia (where the populations are very low).

Try doing this without connecting to the Internet. It may be your Xbox sees that your internet connection is quicker than HDD speed.

Most physical discs should be playable with no internet connection unless the box specifically says internet connection is required.

Obviously day 1 patches require Internet. A game unplayable without a day 1 patch is extremely bad practice such as Cyberpunk.

The base game should be playable without Internet. Switch cartridges have lower storage size (32GB).

Nope. Some of the best selling consoles in India sold like 100k. You need to educate yourself on living cost.

The avg salary in India is $400 a month. The US equivalent would be a game console costing nearly $5000.

https://www.speedtest.net/global-index

At least when it comes to speed, pretty much half of the courtiers listed are above 30Mbps, which I'd call accaptable for all digital console and around 75% above recommended 9Mbps for game streaming. However, there's a question of accessibility per capita and potential data caps. 

We could extrapolate the broadband access from this data and combine it with the average speed: https://data.worldbank.org/indicator/IT.NET.BBND

For example:
Brazil - 36M fixed broadband subscribers, average speed of 78Mbps 
Argentina - 9M, 37Mbps
India- 22M, 46Mbps
Mexico - 21M, 35Mbps
Vietnam - 16M, 64Mbps

I'm going to massively oversimplify, but if (let's say) one in ten of those subscribers would be intersted in a gaming console, that's over 10M potential customers in those 5 countries.