Even if cloud gaming can become the staple for their 1st party and 3rd party gaming software it would be best for them to maintain their own form of hardware. By eliminating hardware they risk eliminating presence, especially if a move like that was done before the new service was firmly established in the consumer mind set. As long as they create hardware that they can sell to generate profits they should do so, providing their cloud services on everyone and their grandma's devices just add to their overall scope of market.
Software only would restrict their innovation to software, no longer could they utilize hardware innovation at least not without a dedicated machine that a firm number of people will be able to use. In addition physical products will need to still be made like controllers to play the games. Trying to provide accessories to dozens of different products is not going to be effective, and even if they are compatible certain products are not best utilized lugging a controller around. Also by creating hardware they can craft a device that best utilizes the service, as opposed to using an iPhone with a limited screen and terrible touch screen for most games and is required to use an external controller anyway for others.
That doesn't even touch the preferred market for physical games which will need to be catered to for some time. Not providing that option would be devastating to their business, though you might think as long as their profit margins are high enough it shouldn't matter. Problem is though, marketshare does matter. Marketshare creates product recognition and ensures third party support. If they were to forgo marketshare for profit, they might just end up with a whole lot less profit in the long run as they can't move the units to make up for being greedy profit margin maximizing corporate cronies. It would be shortsighted to think profit margins are a universal. There are many factors in place that lead to profits at the end of the day.
Before the PS3 everyone was nice to me :(
