I wouldn't go that far. Remember that D&D was in a very bad way after TSR's collapse. There are times when a strategy geared for short-term success is the right one... like when you're trying to salvage a failed business and you need to rebuild market share and customer base. Considering where D&D was when Dancey came in, and where it was when he left, I don't think it's fair to say he had a bad strategy.
I think it is. "A new edition every 5 or 6 years" completely failed to bring in the promised revenue. To the extent 3rd edition was successful, it was in spite of Dancey's planned obsolescence and the tidal wave of splats that completely broke the game (even more so, any way), not because of it. In fact, I think Paizo proved well enough that a sustainable business model could easily have been built around 3rd edition's core rules, clunky as they were.
What exact business principle are you referencing when you mention"running sustainable profits instead of trading long-term viability for short-term gain."?
Maintaining brand health by developing a reputation for quality and meeting customer needs.
To be clear long-term gains are the goal, no one is disputed that as this is common sense but repeat business is the goal of a business and how businesses grow.
Up through the 1990s, Detroit designed and planned for their cars to get repaired frequently, and to need to be replaced at about 70,000 miles. This is why Toyota sells more cars than General Motors now.
Generally speaking, people do not like replacing non-perishable goods. They buy them because they have to. Everything eventually breaks down, wears out, or goes out of date. If you can get a reputation for needing replacement less often in home appliances, cars, power tools, computer equipment, etc, you will crush your competitors.
RPG rulebooks are non-perishable. They aren't consumed via use. People do not
want to replace them. What makes RPGs fun for most people isn't learning an all-new set of dice rolls to swing a sword, it's going on imaginary adventures with your friends. The "standard" approach is to release a badly designed product, run it into the ground with rules splats, and solve everyone's problem of being stuck with a crappy, broken rule set by releasing a fresh, clean new one...that you intend to eventually break. In other words, the business model revolves around
making your customers unhappy, eventually ruining their experience, and offering to save them with an expensive reboot.
What this does in the long run is degrade your brand appeal. I'd rather go with somebody who doesn't make me rebuy the core rules just to un-break things, and so would most people. People who like learning rules just because they love nerding out over new mechanics are a tiny niche, so the fact that some teeny-tiny company can keep a few thousand niche users happy via frequent rules reboots isn't really relevant. There are all kinds of strange, niche markets out there.
IIRC, a lot of people were pretty angry about 3.5 making their 3rd edition books obsolete, and they were even angrier that 4e was making their 3.5 books irrelevant (and this was before finding out just how different 4e really was).
Prior to 5E D&D 3E was the highest selling edition.
IIRC, that honor goes to BECMI.