Xbox's fall is because of bad management. GamePass is a decision brought about by bad management.
It really started in the last half of 360's lifetime, when Xbox decided to chase the motion control fad. That in itself is fine, but management decided it was so important, their 1st party AAA exclusives started to dry up as studios focused on content for Kinect. Sony, on the other hand, was still putting out bangers, as well as content for Move.
Next we have the XBO. While Sony was smart enough to realize motion control was a fad, MS management decided to go all in on it, which meant going with a weaker GPU to offset the cost of the Kinect 2.0. They also geared the whole UI around Kinect and focused on a cable TV integration, when anyone with eyes could see people were moving to streaming. They also, for some unknown reason, thought their 3rd place finish last gen gave them a strong position to where they could push DRM for the system, requiring the system to check-in every 24 hrs in order for you to play. Talk about arrogant.
It also didn't help that after the first year or two of the XBO's lifespan, their exclusive content not only started to dry up, much of the games they were releasing were mediocre at best, seemingly because management didn't really care about quality, but just wants content. They also started putting these former exclusives out on PC Day 1, making the Xbox HW more redundant. These problems have carried onto the Xbox Series. Then, you have GamePass...
Let's just be honest here, games on PC and GamePass Day 1 was not about giving more games to more people. It was always about baiting Sony into following down a business path of self destruction/devaluation, as only MS could afford to take such heavy losses on supporting the redundancy of their HW and putting AAA exclusives on a subscription where they'll make a fraction of what it would at retail. Management thought they could spend Sony out of existence once and for all. Sony didn't take the bait and is reaping all the rewards, while MS is stuck with GamePass. A subscription that is very expensive to run and where management still seemingly doesn't care about quality, but just needs more content to feed the beast, otherwise they start to lose subs.
In the end, management is the real issue, a problem they seem to refuse to solve. Which is why it's foolish for Xbox fanboys to cheer on more acquisitions when the real problem hasn't been solved, and will only spread to the new studios. MS also needs to learn, Sony isn't reacting to them. They're always reacting to Sony.