This is a very complicated question. Many Microsoft employees would have a very heated debate over the answer to this question. It was the cause of a ton of internal conflict. Many Windows developers saw the Xbox ecosystem as a cannibalization of their existing product.

The move was political. Microsoft wanted to get some of that PlayStation money. They were afraid of losing the living room to Sony. Sony had TVs, VCRs, DVD players, and now this other thing, PlayStation, that also plugged into the TV, that all the kids were essentially demanding have equal place among the DVD player.

Microsoft already had PCs in homes. Well, operating systems. And many developers would have agreed it makes more sense to blow open the emerging market they were already champions of/adjacent to.

But it paid off. They were able to secure a fight over the living room rather than allow a competitor to take it on wholly. Pivoting to PC gaming would t have solved this threat.