They are not smaller than Nintendo.

Microsoft are not the good guys here.

Nintendo built their own studios.

Sony created some studios while buying up small indie studios and building them up.

Microsoft just straight out but two of the biggest gaming publishers there is, and they plan on buying more.

You're not gonna get rid of exclusives. You're just going to ensure that Microsoft has all of them. Ironically, this means console hardware is going to get worse because there'll be less competition. as everyone will be choosing Microsoft if they want to play of the thousands of titles they now own.

Sony and Nintendo can't compete in the cloud space and will end up becoming publishers only when streaming becomes mainstream (no pun intended). So hardware is irrelevant but it's pretty clear at this point that Sony always has the best hardware despite relying on exclusives most of the time.