Yes and that's the thing. If you were a business who would you trust? A company that established a good relationship with you over quite a period of time or another one from a related but dfferent industry that pushed to enter the same market. It was a risky move by Square, no doubt, but in the end it seemed to pay off. However, perhaps it had been possible to not fuck up Nintendo's relationship at the same time. Other companies had parallel relations with Sega for example, so maybe Square would have been able to do as well. It's impossible to tell nowadays, I guess. But turning FF into a Playstation exclusive was definitely risky and backstabbed Nintendo who seemed pretty surprised by this move. What possible reason could have been there for Square to turn to a newby in the playground and go all in with all games from that moment on. One big reason was obviously the money and another the creative freedom. I'm sure both would have been negotiable with Nintendo as well, however.
It's an interesting story and it ultimately lead to the competitive situation we're in today.
It was risky, although difficult to say how risky. I mean, I don't know how much revenue they were getting from their games with Nintendo, but with money coming in from Sony for making games for them in the first place they surely wouldn't have even needed the same level of sales to make the same amount of money. I expect Sony covered a fair bit of the marketing costs too, saving them some money there too.
You've also got to wonder just how negotiable Nintendo were back then too though. That was an era during which they had incredibly arrogant leadership. Entirely possible that they would've refused to negotiate as they thought Sony weren't serious competition and that after the PlayStation failed Square would come crawling back with their tail between their legs anyway.
Although that said, if games being multi-platform was easy to do back then and had been standard practice then I expect they would have went for that approach instead, or at least attempted to.