Sony's PlayStation is a popular consumer software platform, showing they’re not completely incapable of providing usable software.
I'd point more towards the competitiveness of the digital music market making their aggressive attempts to lock customers into their own narrowly focused music platform much less appealing. In game consoles, proprietary content is the point; not so much in audio gear.
Playstation is basically embedded software though, and everything that runs on it has been custom made for it (it’s also interesting that it spun from a Nintendo cooperation, which makes it a very special division compared to the others)
In that respect their MD player was also running decent software, it just didn’t talk to anything not Sony produced.
Anecdotally, they also have a joint venture with Docomo that worked on NFC payment solutions that was super successful with genuinely strong software.
On the music market, I think the lockin wasn’t so much an issue (iPods also locked you in to some extent) than Sony’s desktop software being utter garbage.
I actually bought a Net Walkman at that time because I liked the hardware more, and it was hell: I’m not even sure there was any mac support, I might have run a VM for that, and even in a proper windows environment it was still buggy, extremely time consumming to move tacks to the player, yet limited and low quality. I personally think Sony lost to itself, more than the competition coming for Sony.
I'd point more towards the competitiveness of the digital music market making their aggressive attempts to lock customers into their own narrowly focused music platform much less appealing. In game consoles, proprietary content is the point; not so much in audio gear.