Is there a reason to even have generations at this point ? 

Just release a upgraded hardware every 3 years and let devs decide which hardware they want to develop for, just like PCs 

it'll always be a case of what could have been with PS5.  That first year demand was especially crazy.  I have no doubt it'd be by far their biggest first year ever if there hadn't been the damn pandemic.

Considering how the PS4 Pro and Xbox One X fared, yes. AAA publishers need the security that there's a big installed base, because their financial investment is so high. A new generation sells much better than an upgraded hardware revision.

The proposed upgrade model also comes with the catch that the older hardware can't be left out for a long time, because it would mean too many lost sales. That in turn makes most of the technological advantage of an upgraded model go to waste which then in turn means that there's less incentive for the market to buy an upgraded model over the old hardware.

But the most important reason why generations aren't going to go away is because neither Sony or Microsoft would grant the other company the tremendous marketing advantage of a new generation while they themself would stay course with merely upgraded hardware of their current generation and would be perceived as outdated. Therefore they'll keep forcing each other to make the move to introduce new generations.

In order to believe otherwise, you'd have to buy into Phil Spencer's PR that console sales aren't important anymore for Microsoft, thus opening the door for a major change. But it comes as no surprise that Xbox and Microsoft higher-ups brag about sales now that they aren't absolute basket case anymore, because the obvious explanation for Spencer's "console sales aren't important anymore" was always that they didn't want to talk about the numbers because they were so bad.

In retrospect, Sony's exclusives should've ditched PS4 and supported PS5/PC day and date (or 6-12 months PS5 exclusivity) at least until production significantly improves.

With the shortage in mind, HFW, GT7, and Ragnarok should have been developed around highend PC's from 2019 and ported to PS5. PS4 is just holding back PS5 for a very small return. Since full exclusives make even less sense in the current circumstances, PS5 + PC is the way to go (PC has a sizeable established "NextGen" installbase to tap into). I think Sony is starting to realize this but is concerned about the long term consequences.

It doesn't matter all that much how many PS4's are out there if the playerbase isn't active enough. Sony games' splits are highly skewed towards PS5 despite the massive installbase gap, and will end up more skewed over time. The majority of PS4 owners intend to play these games on PS5.

Ah there any Sony games besides God of War Ragnarok still slated for release on PS4? That game will probably be the swan song for Sony's 8th gen system.