It will affect the industry in four ways:
1) Publishers and developers will be less incentivized to prioritize, highlight, or even just talk about an Xbox version of a game. This will lead to a lot more mindshare (as silly as that word sounds) for PlayStation and potentially PC. This will also, more than likely, lead to more crappy Series S versions of games.
2) Unless there's a real business opportunity on Xbox, moving forward, publishers and developers will be less incentivized to do an Xbox version of their game. This will lead to more games and sales successes on PlayStation, PC, and potentially Switch 2. Assuming the Xbox Magnus is truly just a PC with Xbox BC, we could witness the launch of the Magnus with (technically) zero Xbox games. This will cause confusion and will affect current Xbox Series users because games could be announced for the PS5 and "Xbox" but won't be able to run on S/X.
3) Growth in emerging markets (e.g., China) will be near zero for Xbox hardware and services. This is why the "This Is An Xbox" campaign is a double-edged sword. It enables them to get closer to their new vision (i.e., bye-bye Xbox hardware) but it inherently signals to any potential Xbox customer to stay away from Xbox-anything. Game Pass will be screwed, which means Game Pass users will be screwed again (i.e., more price increases) and if you're a developer or publisher in an emerging market, Xbox makes the least sense for your game.
4) It's going to be really really hard for Xbox to retain it's current workforce whilst the platform continues to experience massive declines in both hardware sales and Game Pass growth. For example, if another major retailer decides to unplug from Xbox, the people at Xbox who manage retail relationships are on the chopping block. It's a sad outcome and I expect the usual Xbox cheerleading outlets (e.g., IGN, Eurogamer, Windows Central) to continue to ignore the root cause (Phil Spencer) of Xbox's complete collapse and try to blame the layoffs on unrealistic targets or tariffs or something.