I think reality is exactly the opposite of what you think needs to happen. You're implying that selling more of the most powerful hardware is what needs to happen to grow a core fan base and enable success. But is that really true? Microsoft is buying a core fan base by purchasing Zenimax and Activision/Blizzard and enabling revenue generation by not requiring a console purchase to play their games. They want to make as much money as possible without relying on XSX hardware total.
Microsoft's strategy, as a software company, is to maximize software sales across the board. That's why they have two console SKU's, a streaming service, and also release their games day and date on PC. Having an ecosystem where software sales are limited by how many hardware units they can sell is limiting across the board. They know they won't sell as many consoles as Sony, so why try to fight there? Having a lower spec console that can play the same games as the higher spec console is a way to enable people who can't justify the cost of a PC or Series X to continue to participate in the ecosystem. Casual gamers as a group spend billions, so why not make the effort to capture them with a lower cost option? The day Series S can't play the same games as Series X is the day Series S becomes irrelevant.
You can see this playing out with Sony's strategy, too. Because of the supply chain limitations Sony have had to keep cross-gen alive longer than normal and keep base PS4 production going because it's been literally impossible to make enough PS5 consoles to meet demand. No doubt this is because it is difficult to recoup their investment in the games they're making with PS5 sales alone at this point. In addition to more cross-gen, they're improving their subscription and cloud offerings and they're expanding to PC gaming to broaden their revenue sources. Things that people on this forum claimed Sony would never need to do because they sell The most consoles. Why? Because it's becoming too risky to be in a situation where their success is directly bound to their ability to manufacture hardware. If they can't get parts due to a global shortage they can't produce consoles and if they can't produce consoles they can't hit their revenue targets. It's as obvious as risk models get.
So, to the chagrin of the hardcore console warriors, the focus on who sells the most units of the most powerful hardware is starting to become irrelevant outside of list wars. The goal of these companies is going to be to increase access to software through subscriptions, cloud, PC, etc. so they can extract as much revenue from the total market as possible. At the end of the day that's what they'll care about more than who sells more plastic boxes.
