I think so. Because ultimately, GamePass or not, you still need the most important thing: games. High-quality games variety and, as a platform holder, at least some games that can say are leading the industry as an example in one way or another.
It would have taken Microsoft time to begin solidifying that, and I think without GamePass we probably wouldn't have them out here trying to buy ABK, but if they got the ball rolling with FH5, if Halo Infinite didn't turn into a disaster, and if stuff like Starfield, RedFall, Fable, Avowed, Hellblade II, Perfect Dark etc. showed clear gains and consistent high quality...that would be enough to start getting a lot of people outside of the brand to consider it as an additional option.
Maybe trying to look at this through the question of if Xbox could've competed head-on with PlayStation this gen without GamePass because if you mean "compete" in terms of challenging them for marketshare then no that wasn't going to be possible. Even with GamePass there's little probability Microsoft can catch up to let alone beat Sony's market share, and the only way they're going to be able to close the gap in revenue is by buying giant publishers and absorbing their revenue streams into Xbox's.
However, "competing" doesn't mean the results have to be evenly matched, it just means that the effort has to be genuine. OG Xbox was a genuine effort and resulted in a phenomenon in Halo and a ton of really cool, somewhat more hardcore, niche AAA & AA games including a few surprises from Japanese publishers & developers. Sure it was vastly outsold by PS2, but that doesn't mean it didn't compete and didn't have some good results of its own. The spirit of the competition they had at that time, or with most of the 360 gen, that's the comeptitive spirit I respect most and is still peak Xbox so I don't get the people who keep saying the Xbox of this generation is "stronger" now than at any previous point because in so many ways that is still simply not true, and I doubt it ever will be.
The question I guess is if GamePass is partly to blame for this feeling....I still need a few more examples before answering.
They don't hold a candle because they don't have a console like Sony does. But Sony's clearly pushing up PlayStation Plus as an alternative and look what's happening. They're getting the heavy hitters like Assassin's creed, Yakuza, (keep in mind they're getting the ENTIRE yakuza series instead of just a rotation of the remakes + Yakuza 0 and Yakuza 3-6) and Final Fantasy 7 Remake.
They have the more popular console, so companies are running to try and immediately get their best games on their service, likely charging less than how much it did for MS to get them on Game pass.
Xbox will still have a MASSIVE amount to compete with... if their first parties can produce enough games to keep the service fresh. Seeing how we're going to go an ENTIRE YEAR with 0 new first party content, i think you can see how that's working out.
Until they can get the gears turning like Sony currently does with their well-oiled exclusive machine, The subscription wars will be an uphill battle for Microsoft.
Speaking on that last part....what we're seeing from Sony's 1P these days is the result of almost 15 years worth of build-up among their internal studios and technology teams, among relationships with with 3P partners as well. GOW Ragnarok's not only building upon lessons & techniques learned from GOW 2018, but also Spiderman, and Ghosts of Tsushima, and TLOU Part 2, Uncharted 4, The Order, Bloodborne etc. Not to mention interpreting things gleamed from various 3P games over the years, too. The same can be said for their other recent and upcoming 1P releases, as well.
All of these games have been building upon very solid foundations over multiple iterations, releases over multiple years, and studio leadership & organization has grown along with that. You don't just suddenly go from making a two-bit game to a TLOU Part 2, that's why I think people expecting MS 1P to suddenly rival or beat a lot of these Sony marquee 1P AAA games need to temper their expectations. No doubt we're going to get some really solid stuff from at least a few of MS's teams, like Hellblade II for example. But most of their teams have not been consistent in the way, say, Playground Games or Turn 10 have, and those are very specialized teams with a specific genre niche (racing games). That's without even bringing the Sony teams like Naughty Dog, Insomniac, Guerrilla Games, Sony Santa Monica, Sucker Punch etc. into the discussion.
Maybe we can see something like Microsoft's GOW Ragnarok, TLOU Part 2 etc. equivalents by the end of this generation, but it's going to require consistent quality and improvement from a few of the key studios suited to deliver those types of games, and right now the main one for me in that regard would be Ninja Theory. Can we get a few games from MS this gen that are truly mainstream, clearly pushing the boundaries of what a AAA games can offer, have characters & story that connect with huge audiences like big blockbuster films? We'll see, because I'm not doubting they'll have quality games, particularly if we're talking racing games or RTS titles.