The console business has matured in the last ten years. Due to platform lock-in and social spread (friends buy what other friends have), any significant lead now becomes iteratively compounding growth and the effect appears to be accelerating.
But the real reason why MSFT is no longer committed to the console hardware business is that hardware margins are much lower than software, subscriptions and cloud services. It brings down the corporation's blended gross margins. That's why they spent $100B buying game studios. Even giving Sony a cut, it still maths out better.
MSFT will continue to do console hardware but they're changing their strategy to still reach their margin and revenue goals with the #2 or #3 hardware platform. That means there's no reason for MSFT to go 'all-in' on the next-gen hardware (meaning they'll won't intentionally plan to incur tens of billions in losses in the first three years of a new generation and make it up in the last four years). But console hardware is still huge for Sony and existential for Nintendo - so they will go into deeper and longer hardware losses. XBox execs have already indicated that the form factor of their platform hardware is going to change for the next generation. Industry insiders interpret that mean they're giving up going head-to-head against Sony on the traditional console form factor.
