Well, it certainly started with the Xbox 360 and this is where we are with the Xbox Series as well. Eergo, it started with the 360.
XBO was the exception.
The reasoning for the exception is the important thing. The X360 quite obviously did it because of how the X360 at the time handled the physical DRM of games. You'll notice that for anything that didn't require verification of authenticity, you could use any old USB drive for it.
XBO no longer needed the storage subsystem to be part of the verification chain for whether or not the games on it were "officially" released. And since existing USB drives were performant enough to match the internal drive there was no compelling reason to not allow it to be used for games. Had MS been driven by profit incentive for external media, this never would have happened.
XBS like XBO doesn't need the storage subsystem to be part of the verification chain of ownership. However, MS desires consistency in drive performance for games. So we're back to licensed drives, except this time for minimum performance consistency rather than a hardware verification chain.
I really believe that MS would prefer not to have to deal with licensing of external drives for use with games and I'm doubtful that profit incentives are what drove them back to limiting external XBS game storage to official storage expansion options again.
Odd, since I'm usually quite cynical about a lot of things, but just the fact that they did that with XBO despite XBO (at launch under management that is no longer in charge of Xbox) was at the height of penny pinching profiteering (microtransactions were a huge focus with their GAAS strategy to kick off that generation). It just seems extremely weird for them to then decide that they no longer wanted a profit stream from external storage.
Thus, IMO, it's far more likely an indication that MS just plain does not want to be in the business of selling external storage. Further proof is that unlike the X360 generation, the drives are manufactured for Microsoft and sold by Microsoft (so zero competition). Instead it's licensed to 3rd party storage makers, likely with the hope that it would drive down end user costs through competition. MS provides the specs and presumably after Seagates exclusivity period (likely to guarantee at least once source of drives at launch) any drive maker could apply for a license to provide drives, said license dependent upon their drive meeting minimum sustained performance requirements.
Now, if these drives were manufactured for MS and sold by MS, I'd absolutely agree that their choice was entirely profit driven.
Regards,
SB