Please read the linked article at the end, from someone who lived at that time it brings great memories of the console wars: https://arstechnica.com/gadgets/2013/01/how-i-launched-3-consoles-and-found-true-love-at-babbages-store-no-9/
Sega had a chance to hold on to enough market dominance to remain as the third console player even after this, but then their fate was sealed at the very instant they decided to put a CD-ROM drive in the Dreamcast instead of a DVD drive.
I was in my early 20s when the Dreamcast came out. The discussions online and amongst people I knew had a lot to say about the DC and PS2. Storage never once came up that often
It was always polygons. Sega was saying 3M (highly detailed and textured ones) and Sony was saying 66 or some ridiculous shit.
People were just waiting on it
Yes, by the time the PS2 came out DVDs were getting bigger and that definitely pushed a ton of people to get one as their first DVD player, since most were still over $200 so the ps2 was nearly free (fun point, that’s how I convinced the lady I needed a ps3 in 2012)
But really it’s about the marketing and PS2 hype. No one knew the Saturn existed, and it’s largely due to everyone forgetting about them after the complete disaster that the Saturn was in the US