Interesting. So it's a play to increase adoption / apps for their store. If successful though, do they just raise their cut back up?

Chances are pretty good since the Xbox Games Store remains at 30%. And 5% is very, very low even for low-cut stores: apparently Itch is whatever the dev chooses, Epic is 12, Humble Store is 15% + 10% to charity or as store credit and Steam is 30 sliding down to 20 (above 50m sales). Short of individual agreements I think everything else is 30% flat.

> Xbox Games Store remains at 30%

I believe it is a lot more complicated than that. Non-game Apps on the Xbox see the same splits as on Windows (the 85/15 and 95/5 based on "marketing"). The 70/30 is offered to game developers that want to do only the bare minimum Xbox integration possible to get on the platform, almost every other scale and publisher agreement is presumably covered under NDA of one sort or another. Some rumors are that the sliding scale is today competitive to Steam's (and better than Sony's, maybe? Sony's seems even more NDA encumbered), with a lot of complicated other factors such as Xbox Play Anywhere titles and allowing Xbox Game Pass rotations are rumored to get substantial cut discounts based on the shifting whims of Microsoft's marketing teams.

I think you've pretty much captured the general post-Ballmer strategy.