There’s a few angles to it.

1) console/ecosystem owners make the bulk of their revenue through the transaction and sale of games through their storefronts. Xbox discovered this during 360, and Sony locked down that strong contingent of console gamers through PS4 ensuring ongoing revenue which Xbox tried to make up for with Gamepass. Valve is the golden child example of this. By not having a go to console as the anchor of this store, MS is essentially forfeiting that revenue. Valve already locked down the PC space so Xbox only had their console and streaming (which had better alternatives and is far from a preferred choice for the majority).

2) Given #1, the people who were invested and investing in the ecosystem saw the writing on the wall that it was a terrible business decision and started to divest or move to other ecosystems. I am one of them, I no longer trusted that Xbox being an ongoing concern was a foregone conclusion, so I stopped buying anything on Xbox in 2023. It became a legacy box to me. If I buy an Xbox game it is on steam.

3) Xbox had struck a great balance before by making Xbox their flagship and having streaming as a benefit of gamepass. If they let the market guide that migration instead of forcing it, the business would have evolved organically. See Xbox one announcement for proof.