What do you mean by "Nintendo is relegated"? Is that supposed to mean they won't pose a threat to PlayStation going forward? Just because they aren't a "direct competitor" the way Xbox has been, means they can be ignored. In fact, if the Switch 2 is capable enough to get 3P AAA games the way Switch wasn't necessarily conductive of, Sony can kiss a lot of defacto 3P console exclusives goodbye.
Devs & pubs will go out of their way to bring those games to Switch 2, either with scaled-down ports or, I suppose, a combination of that & cloud streaming for visual enhancements/supplements similar to games like Flight Simulator on PC for streaming in textures real-time. Meanwhile you've got Nintendo's 1P developing the next big Mario, next big Zelda, next big Smash Bros. etc. which will all bring a lot of innovations and all-around fun.
Xbox as a console is dying, yes. But if the next generation of Xbox systems are the rumored PC-like mini PCs/NUCs, handhelds (maybe a hybrid with an eGPU-equipped dock) etc. running a custom Windows environment (with Xbox UI) with emulators for OG Xbox/360/Series but also able to run the regular Windows environment...that will ironically give Xbox hardware a new lease on life. They won't be doing 360 numbers, in fact they might land anywhere between Wii U and Series numbers. But for what those new Xbox devices would be, those would be great numbers and they'd be making a good profit on each device sold since it wouldn't be sold at a loss/subsidization.
Also ironically, if Sony gets more aggressive with their PC strategy to do a launcher/storefront as well as Day 1 for all their games to PC, that actually gives a lot of value proposition to those Xbox devices. Sony can try making their games on PC exclusive to their own storefront, but that's not going to be an easy battle to win nor cheap, just ask Epic. So they could be in a position of losing tons of money on PC by trying that tactic, and losing console sales because of their own launcher & Day 1 on PC. The latter won't just occur with some hardcore/core enthusiasts; there is a knock-on effect where that will also affect other customer types, even if the total number of hardcore/core enthusiasts who drop the console to go PC is somewhat small (say 3 million).
The only way Sony could genuinely compete with Steam would be to scale back their PC port strategy for the remainder of the gen, keep most of their AAA & AA as genuine exclusives, and add features to the PS5 experience that are currently lacking but are present on Steam, like transparent engagement numbers tracking (CCUs, peak players, player loads by timezone etc.), more fully open mod support, integrated forum communities, a better refund policy, better integrated streaming/multi-streaming & multi-simultaneous application runs (these last two are more in bringing some additional PC-like functionality where it would make sense). Also things like adding streaming of PCVR games to PSVR2 for console PSVR2 owners, etc.
However, many of those things would require effort, money and time, and I just don't think the current leadership at SIE are interested in doing things beyond the bare minimum when it comes to "growth". If I'm wrong though, I'd be glad to be so. But at this point and going forward, I have serious doubts.
