The reasoning is Microsoft is now in the services (as well as advertising) business, with traditionally-licensed desktop software revenue becoming less and less

The reasoning is Microsoft is now in the services (as well as advertising) business, with traditionally-licensed desktop software revenue becoming less and less important. Which you kinda stated in the last sentence. The reasoning for not going all in on privacy is because they want to maximise services and advertising revenue, and they also sell to government and enterprise who actually like the ability to spy on their employees. There's not much financial incentive or government regulation to make them focus on consumer/end-user privacy.