Are people still talking about a next-gen Xbox as if Microsoft would be competing directly with Sony? Lol. Give it up. That dream died when Satya & Brad took over for Spencer, Bond and Booty. And that takeover (figuratively speaking) has happened.
If Microsoft launches in 2026, it isn't to beat PlayStation to the punch. They're probably going to start with a handheld, and will already have to contend with the Switch 2, (likely) Steam Deck 2 and a PS Portal 2/PS4 Portable. Maybe they also launch a new home system around that time too, but again it's not going to be to "beat PlayStation". They have given up on that aspiration. In fact the only thing that can really dismantle PlayStation now is hubris (which would allow indirect competitors like Nintendo and Steam to quickly take advantage).
New Xbox hardware is going to focus on achieving two goals. 1: to retain as many core Xbox users as possible within the hardware ecosystem, and 2: entice PC gamers who want a more console-like experience and are in the market to upgrade, to buy an Xbox device serving their needs. Point #1 would cover hardcore and core enthusiasts who want "power" but in the confines of what a console would typically bring, while Point #2 covers a large swath of PC gamers, as most aren't rocking 4090s or 4080s, or i9-tier CPUs, but could have increasingly outdated low-end hardware in need of a modest & affordable upgrade. There are also some among those who would prefer the stability and ease-of-use of a console.
Those would be the primary target demographics for some future Xbox hardware (including the rumored handheld), and both are smaller than the primary target demographics of PlayStation and Nintendo. However, it's obvious at least someone at Microsoft/Xbox feel it could be a market worth catering to, otherwise there'd be zero talk about future Xbox hardware whatsoever.
Most likely, they're going to start with the handheld, then a console-like device. If MS were smart they'd completely gut Game Pass as it currently is, and utilize that as a way to monetize the non-Xbox storefronts they want to bring to the device(s), while leaving Day 1 for demos & extended trails of 1P releases, otherwise using the service for legacy software. The model simply doesn't work otherwise. So, if someone wants to access Steam through their Xbox (it needs to be a native app with same permissions and level of control as the Xbox Store has), they get it for $3/month or $5/month through some Game Pass tier that comes with other perks. Something like that.
And, maybe that way, instead of some Xbox console-like box with PS6-like performance (as an example) selling for $799, they can sell it for $699 or even a tad less, still get some profit on the hardware upfront, and cover some of the potential hit in people buying their games from non-Xbox storefronts on the device. And that is probably going to be more of how they would tackle it: bringing PC-like openness and customization options to a console-like device. Bring some form of the Windows Store to the devices and let users access whitelisted apps & programs through it they can download on their hardware, like they would a PC.
Actually that idea of having more PC-like openness and stuff, is what I think Sony should be doing for PlayStation going forward, too. But in Sony's case it's a bit different; I don't think they need things like modular hardware upgrades or allowing Steam on PS to act as selling points. But they do (IMO) need to make the PS experience more competitive with Steam when it comes to integrated community features, transparent game engagement & tracking metrics/data, a better way of handling Early Access, etc. And maybe make certain non-essential parts of the hardware modular, like they already have the disc drive. That way users who want say extra USB ports or a higher-speed HDMI port can just buy those additional peripherals/components.
But anyway, back to Xbox...
One thing Microsoft aren't going to do, is suddenly start making exclusives for the next generation of Xbox hardware. At the very least their PC Day 1 support is here to stay, and they will probably make changes to Xbox OS so that builds for Xbox and Windows are even easier to manage between the two. I guess something to the point, where they can integrate any Windows functions that applications like Steam would need on PC, but aren't currently needed for Xbox versions of games, and provide them as extended features of Xbox OS going forward. That way devs don't "really" have to compile Xbox-specific builds of games to run on an Xbox device. Microsoft would probably need to also do this for whitelisted apps/programs too.
Good thing on that front is, they already kind of do this (AFAIK) for emulators like RetroArch, though you have to set your Xbox into Developer Mode to install and run those programs. In practice, with future Xbox hardware you could just run that type of stuff in normal mode; no switching needed. Back to the games stuff; there might be a couple of "incidental" "Xbox exclusives" here and there going forward, but those would be the Flight Sim type of games, and only "Xbox exclusive" in the sense of if someone were still wanting to view Xbox as a traditional console versus PlayStation. Those types of games wouldn't be the norm though, PS/other platform versions would surely come in due time, and the vast majority of MS games would be Day 1 on basically all platforms anyhow.
) and that's using multiplatform engines. In 2 years all games will use hardware RT which is not the case now, most UE5 games use software RT.
. PS5 is doing better on that front outside of some QOL quirks like no system-level VRR.
