The X is trying to compete in a premium space, long with the PS5. The X falls short of the PS5 in almost every category that a premium consumer cares about, and I don't think premium consumers are interested in value-oriented subscriptions like GamePass.
The S is competing with.... Well definitely not the Switch. I wouldn't say the Steam Deck either. It was competing to an extent with the PS4 and Xbox One, but not anymore. The S has kind of been left in its own market, so this news makes sense.
Maybe the Switch 2 will have some overlap in that market, but assuming it's a hybrid handheld it might still be differentiated enough to leave the S on it's own. Sony has been working on lowering the cost of the PS5 but I can't see that getting anywhere near S territory. So unless something else drops I don't see the S having competition any time soon.
When you're talking about a premium market in particular, I think most high-end consumers who care about the aesthetics of their living room would prefer the official, matching Dualsense charger/stand over Microsoft's charging kit.
The exclusives are huge, especially factoring in backwards-compatibility. Xbox is undoubtedly a better value if you already have a library of older Xbox games or you are shopping used. But if you divide consumers up into Budget, Value, and Premium tiers, I don't think the Premium tier consumers care about playing games that old. The PS4 had way more big-budget AAA exclusives than the Xbox One did, so I think PlayStation has the advantage there.
Weirdly, I think there's some dissonance with this around disc drives. I would think premium consumers would care less about physical media: they aren't buying used games and probably have concerns for the aesthetic of storing physical media. I personally prefer physical media, but I consider myself a value consumer who has no qualms buying used and can handle a little bit of clutter. So I think disc drive versions are valued less by the premium segment, but costs more to manufacture. So I think that boosts the sales of the diaclsss PS5. Premium consumers aren't interested in the Series S at all though, so if they do go Xbox they just get the X and don't use the drive. I kind of wonder how the market will react if the rumors of Sony selling an external drive end up true.
I'm unsure of these "premium" consumers caring about proprietary vs non-proprietary storage. Or caring about VR in the context of consoles instead of PCs. Or that the charger stand being a concern when the PS5 looks like it does.
The S is a stellar emulation box that doesn't need to be jailbroken. It's a hell of a lot easier to configure than a custom Linux distro like RetroPie and the hardware packs a punch. I don't own one, but I'd be more likely to buy a series S than a PS5 or series X.
That's about using emulators in retail mode which nobody with half a brain thought was gonna stick around. You pay $20 to unlock developer mode and do all your emulation stuff in there. Retail is for playing actual xbox games.