It's so complicated. If Sony and Microsoft were only interested in gaming as it is, their ways would make absolutely no sense. Which is why Sega was totally stupid for trying to react to Sony's business model when they didn't have a secondary plan like Sony did.
Microsoft and Sony see videogames eventually taking over and becoming the device that does it all. That possibility is very threatening to Microsoft and hugely oportunistic for Sony, so if that comes true and either company ends up on top, all the money they spent will have been more than worth it.
The problem is, the money they're spending isn't helping them the way it should. Their direction isn't really being realistically in synch with what the market wants. For many people PS2 was good enough, so they're going mobile/handhelds. For others the Wii interests them more. It's not inherently flawed, but it was financially risky to bank on a certain paradigm that you don't know will be the real future.
Maybe it's not so much flawed as much as failed. The way of technology, and razor/blade model is no longer a risk worth taking because gaming isn't evolving in a straight line. It used to make more sense when the graphics were primitive and the line was straighter, but now technology is good enough. New advances will be harder to predict, therefore profit with hardware is a must.
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