Think about how many people a company looses on their platform between generations or how long it takes to recoup them back. Now with game pass for the more casual gamer who might buy a handful of games a generation MS doesn't have to worry about the switch between generations as much. If you have an xbox one you can paly xbox series x games heck most likely xbox next generation games too , if you have a xbox series you can play next generation games , if you have an xbox streaming stick you can do that too , have an older pc or tablet or cell phone? You can do it also. It just makes sense for microsoft.Thats another point yes, the hardware upgrades could be done server-side. I personally dont really love the idea of streaming but i can see why it is the future.
It's also great because once you buy into the Microsoft Ecosystem the rock bottom price is the monthly (or yearly ) sub. But you can go as far as you want. You can just subscribe and use your current devices , you can invest in a series s or x for higher quality more consistent couch gaming or you can go balls to the wall with a $1500 video card + $1,000 cpu and $500 motherboard and $500 of ram and $500 of nvme drives and so on and forth on the pc side.