Simple. You make more money on software than hardware. The more customers you have, the more potential revenue you can earn. It's not Sony's most profitable division because of the hardware alone. The hardware is just a means for them to extract money out of you through software and services. It's in Sony's best interest to convert as many PS4 owners to PS5 as quickly as possible. I'm not saying that PS5 will be significantly less than XSX. It will probably cost the same, but since they now know the XSX price, it would be insane for them to charge more than that. For some reason some people are predicting that PS5 will cost more, even ridiculous pricing as high as $600, and that makes absolutely no sense to me.
Context matters. Honestly, some of what you say makes more or less sense depending on the presence (or lack of) context.
Sure, you'll make more money on software than on hardware, but that doesn't mean you need to take a loss on the hardware. There's a reason why Nintendo doesn't take a loss on hardware in most cases. I mean, look at the new audience that Nintendo appealed to with Wii. Huge audience, sure, but too many members of that new audience only purchased Wii for Wii Sports. You know, the pack-in game. Had Nintendo sold Wii at a loss, that new audience would've been more of a negative than a positive. Despite Nintendo making a lot of money on Wii, in the end, that new audience was still looked at as somewhat of a negative, not because of lost money but because of a poor attach rate and a lack of dedication from that audience. No company that's taking a loss on hardware and doesn't have a decent stable of services wants that segment of the audience.
Sony doesn't have the same range of services that Microsoft does. You may want to compare PlayStation Plus to Xbox LIVE Gold, and you may want to compare PlayStation Now to Xbox Game Pass Ultimate, but Sony's services aren't evolving as Microsoft's are to create more of a value proposition, let alone a revenue stream. Plus, Microsoft's services aren't even limited to consumers, as Azure (which Sony makes use of, FYI) ensures a robust cloud infrastructure that a lot of developers use, which puts Microsoft in a much better position to monetize its business from more angles (especially considering the popularity of Games as a Service).
Now, regarding $599 being a 'ridiculous' price, that's not a ridiculous price for PlayStation 5 OR Xbox Series X, provided they're both the same price. I mean, they're competing systems, so too much of a price disparity would mean that there's some sort of catch, right? Obviously, Microsoft shot the possibility of two competing $599 consoles to Hell, and things are complicated now. I truly believe that Sony wants to charge $599 for SOMETHING, and I don't think that's an option in either sense anymore.
If Sony charges $599 for PlayStation 5, then PlayStation 5 DE's pricing - at best - will be $499. Guess what: $499 just became the 'ridiculous' price in this scenario, because Sony's compromised SKU isn't even in the same ballpark as Microsoft's compromised SKU. Honestly, even $499 and $399 would probably go down similarly in this scenario, as the response to the now 'ridiculous' $399 price would be that Sony should've done more to decrease the bill of materials to make it a more competitive console. That said, PlayStation 5 DE doesn't look quite as bad in the $499/$399 scenario, but Sony's likely taking a much larger loss on what'll end up being the more popular SKU. Sure, that's true of Xbox Series S, as well, but Microsoft isn't pushing hardware as hard as or in the same fashion as Sony.
If Sony charges $599 for PlayStation 5 DE, then yeah, $599 becomes the 'ridiculous' price, whereas $649 for PlayStation 5 is just the premium model's price. They're both terrible prices compared to the competition, but I do think this was in the cards at some point. If we use $499 and $549 instead, then it's the same deal. And I want to clarify that both prices are terrible because of Sony's poor planning, not because they're both higher. They just offer less flexibility.
When you look back, PlayStation 3's launch price only looked bad relative to Xbox 360's launch price, just as Xbox One's launch price only looked bad relative to PlayStation 4's launch price. Everything's relative, but Microsoft's reasoning for pricing its console is completely different from Sony's.
