I can’t see a business reason why Apple would degrade image sending purposefully- it would drive its own users to get third party apps.

Depends on what the majority of people are using.

In markets where iPhone users are not in the majority, that’s exactly what’s happening: iPhone users are switching to third party apps.

If iPhones users are in the majority, though, then people will just default to iMessage, and non-Apple phones get associated with poor messaging quality. Which creates social pressure for non-iPhone users to buy an iPhone.

So it makes perfect business sense for Apple to degrade the messaging quality when a non-Apple phone joins the conversation.