The more I think of this, the more I feel that everything remains kinda the same, pretty much. With the only downside being reduced XS consoles sales. Which was going to happen regardless of this transition anyway.
My theory is that; as it stands, Xbox has over 20 studios or so. Any AAA project greenlit for any of those studios would cost at least $100M and in some cases even more than $200M. Xbox current model means that all their games are on gamepass day 1. This means that the majority of people that own an Xbox or PC, seldom will ever buy an Xbox game at full price. But what is even more disturbing is that gamepass subscriptions are stagnating so after 5 years of gamepass, they can clearly track how its progression and adoption will go. Whatever their analytics found, has led them to believe that they need to find some other way to take advantage of the massive portfolio of IPs they have.
Enter, Playstation. Now even if everything they have is released on the PS. The status quo doesn't really change. Why? They are releasing the games on PS to people who were not going to buy an Xbox anyways, and because the people that have an Xbox usually also have gamepass, they were not going to buy the games anyway. So their core supporters get the games on gamepass, be that PC/Console. Everyone else (Playstation) buys it.
Sounds fair and somewhat reasonable to me.
The only downside to any of this is that it would significantly erode Xbox hardware adoption, I am thinking like Steam deck levels of yearly adoption at its worst, so basically sub 5M sales per year. But I believe MS knows this, and they do not care. What they want to do is sell games, and sell gamepass. Surely, they must have looked at the revenue they can make from doing those things and decided that it's better than whatever they stand to make from third-party platform royalty fees on a console struggling to hit 30M sales with a user base that hardly buys games.