I realise they also make a lot on hardware, but it seems like that's a revenue stream they wouldn't want to lose.
Because it is definitely making devices less desirable. I presume you still can't buy books from the Kindle iOS app, for example. I know you can't sub on twitch on iOS.
To continue with the kindle example, Amazon could build a kindle PWA that works offline, allows you to buy books, and in every way works identically to their thick client app (it's just displaying text after all, it's not technically demanding). And Apple wouldn't be able to block them from allowing you to buy things, because you're effectively just using a web browser.
The fact that you can't install random apps from anywhere on an iPhone doesn't make the device less desirable to anyone, statistically. Incidentally, if you have source, you can install an app on your phone without paying a dime to anyone.
If they supported things like PWAs and other mobile web initiatives, people could build applications that run seamlessly on their phone, look like native apps etc, and they wouldn't go through their highly lucrative app store.
As phones get more and more powerful and things come along and mature like webgl etc, the reliance on native apps drops more and more. As does Apple's control.
Maybe I should get back under my tinfoil hat, idk, but that is my guess as to where their reluctance comes from.