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Yeah, I have a copy of Half-Life: Blue Shift on CD somewhere, from before Steam was a thing.
Two things happened in parallel. This wasn't a conspiracy and there was no collusion, it was just businessmen making canny decisions which worked out. Fair warning, this post is longer than I expected.
In 1998, Apple released the iMac, the first PC without a floppy drive. In 2008, they released the MacBook Air, the first PC without an optical disc drive, for the sake of making it really really thin. A few subsequent Macs did have optical drives, but the last one was the MacBook Pro, released in 2012. On both occasions, people predicted that Apple was DOOMED, because who would want to buy a PC without basic hardware?
But people did. Some people depend on Mac-exclusive software, and come Apple fans are just cultists. In any case, removing components didn't adversely affect sales, and so other companies concluded they could make cheaper PCs by dropping floppy drives and optical drives, which they did. As such, you can't get a computer with a floppy drive at all any more; you can get one with an optical drive, but you have to know where to look and specifically ask for one.
Meanwhile, Valve were doing pretty well with Half-Life and its expansions. Releasing updates and patches was very much a fuck at the time, because Windows didn't have a package manager (and I'm not sure it has one even today). Valve's programmers started work on Steam initially as a way to distribute updates easily and automatically, but its potential as a DRM system quickly became apparent.
In 2004, Valve released their long-awaited and highly-anticipated new game, Half-Life 2 both physically and digitally... and all versions required Steam. No, you couldn't just put the DVD you owned into your PC, install the game, and play it. You needed to also install Valve's own DRM system, which would regularly call home, in order to play a copy of a game you physically own.
(Pedants and lawyers will say you only license, not own, the game on the DVD. This is true. However, you do own the DVD that the game is on. You don't own the game itself, but you do own that specific copy of it).
People hated this. PC gamers already found it intolerable that they had to have the CD in the drive to play games they owned as if it was a PlayStation, but having to register over the Internet? That was a bridge too far!... but this was Half-Life 2, and gamers™ will talk a big game about boycotting up until it's time to actually boycott. Everybody wanted to play Half-Life 2, because it's the sequel to one of the best, most influential games ever made, and it honestly really did live up to the hype. So they sucked it up, installed Steam, and had a blast with Half-Life 2. Steam also had a storefront grafted on top, allowing people to buy Valve's back catalogue through it, and would also serve as
The next year, Valve figured that hey, if they can sell their own games, why not those of other devs? So they started selling a selection of smaller games, and this is what really led to indie games becoming viable. Without the expense of packaging and distribution, smaller groups and solo devs were able to release smaller, cheaper, and more niche games and passion projects that didn't need to sell like gangbusters to make a profit without having to set up and maintain their own online shops. Steam became the standard vector for selling indie games, and over time, bigger and bigger games started being sold on Steam until it morphed from a major shop into infrastructure. It's no longer just a shop/DRM system, it's now The Thing That People Use For PC Games.
Just three years after Steam started selling third-party games, Apple started phasing out optical drives. Two years after the MacBook Air, Valve released Steam on Mac. As Steam grew and expanded, PCs with optical drives faded away, leaving PC gamers with no choice but to buy digitally, and that meant using Steam, which [https://www.xda-developers.com/valve-steam-monopoly-real-gamers-chose/](does have a monopoly in the PC gaming space).
And that is how the independent parallel actions of Apple and Valve killed physical PC gaming.
Phasing out the optical drive from laptops was just about inevitable regardless of what Apple did. It saved a lot on battery life, not just form factor. I might see digital distribution of music, not video games, as a bigger driver for removing the disc drive, too.
Of course Apple weren't thinking about video games. But they still dropped optical drives, which led to everyone else dropping optical drives, hence no more physical PC games.
SD cards could have been a successor but it's no match for the ease of a good service over broadband internet