Exactly. PS Now is not the Gamepass competitor (it can't be), and I think Sony has realized this as well.
However, PS Plus can be that competitor, and it already has a lead. The quality of free monthly games is already through the roof. In the last 6 months, they have released 5 new games on the service day and date.
Imagine if Sony takes a few more steps this year to make it even more tempting (e.g., get EA Play free with PS+, combine PS Now downloadable library, double the size of PS+ collection, etc.). PS+ can become a very good competitor of GamePass, and if it does it will already have a solid lead of roughly 30 million subscribers.
Having said that, GP growth pace is phenomenal. Plus, the higher price point will have its competitive advantage.
Yeah, they can as well merge PS Now with PS+, add different tiers of PS+, and what's not. The platform is already there, well established, the userbase is also already there, all they need to do is patiently observe the market and make the right moves at the right time.