I'm curious, as to what direction system-wise you feel that they should have gone for PF2?
Heh. I'm an engineer, not a game designer. And I'm not claiming it is easy.
I have the advantage of being able to Monday morning quarterback. And I really do try to look at what is going on as objectively as I can. (And I don't remotely claim to be great at achieving that, but it amusing me when I see so many other comments that clearly are not even aware of the concept)
But I certainly don't for a second think my awareness of my personal incapability to design the next great game invalidates my ability to look at what is happening and simply describe it.
That said, I'll offer a couple vague thoughts I bet would have helped:
1)Shake off the PF complaints and be more objective. They seem to have been fixated on addressing PF flaws to the point that it muddied the idea of just making a really great game .
2)Remember how you got here. I don't think they needed to "tweak" PF. They could have made a percentile or d6 or a freaking cards based game for all I care. But their fan based gravitated to a relatively heavy and relatively sim oriented style. 4E went all "math works" and they lost a ton a folks. PF2E followed that path.
When 5E was announced WotC made a huge deal out of creating a game that would support all prior play styles. They made a discreet nod to their old fans that they had not done that recently, without getting stuck on wallowing in it or slamming the door in the face of 4E fans. And while they certainly played up light and easy and welcoming of new players, consolidating the gaming community was their number 1. And that worked. (Not fair to compare anything to the success of 5E and I do mean to go anywhere near that far, just the approach of remembering all of your fans)
3)If you are going to make a big deal about a playtest then you need to really truly mean it. I don't think they were at all dishonest when they said it. But I think they were rattled when they received the amount of pushback on +level that they did. And they were not prepared to make that kind of change. It was an 11th hour thing to remove +level from untrained skills even.
Is three a couple?
Personally I think that unless they took a big risk and offered something markedly different with what they did d20 system-wise, that they would pretty much be in the same boat that they are in now.
I completely agree. There are plenty of paths to failure, however.
IMHO I think that we'll only see the real fallout for Pazio of PF2 not really catching on 3-5 years down the line. They are already branching out with some 5e material, and in time that may become more of their business than their PF house brand.
Are they? I hadn't caught on to that.
I do think Paizo has created a decent name for themselves and they are diversified. I think PF2E will hurt them. But I'm not calling it at all a fatal blow. Any company that size can fail, and I don't know what else is going on. But if they have a run of bad luck and are gone in 5 years (again I'm not at all predicting that, I'll bet against it right now, but "if") then I won't say that PF2E caused it, but I will say that PF2E was probably the best chance to
prevent it.
At this point, I think they have enough fans that PF2E can even be a solidly profitable game. I mean, clearly. As others have said upthread, any game not 5E would kill for the sales level they have. I've stated multiple times that I'm not arguing that. I'm arguing that it doesn't appear to be doing much better than PF was in the tail end of PF's life. And you don't invest in new game development (as a company, people working out of their basement is a completely different thing) if you just want to go back to the same overall sales.
Plus, the trend is going to go down from here. Where it finds a firm landing is to be seen.
This is more my own imperfect thoughts than directed at anyone in particular:
The d20 OGL was the most brilliant move WOTC ever made.
Yeah 4e made people question it a bit with the success of PF. But with out that misstep 5e would probably be a different game.
PF stepped into a good place during 4e because not only had WOTC screwed up with 4e, but largely the non d20 alternatives ability to attract D&D players looking for something different had been long gone from the landscape. With no viable contender in sight to this day.
It would have been interesting to see if some other player had gone head to head with Paizo and created another 3X successor. A lot of ways that could have gone.
I take the inability of PF2 to grab any kind of increase in market share from 5e to be a notable data point for my theory that 5e's raging success at attracting new players does not translate into success for the rest of the RPG hobby or "market".
Because IMHO there is no single RPG market. There is the market for D&D. Then there is a epically smaller RPG market for everyone else. Because now even in the "everyone else" category, d20/D&D based systems still compete with other systems for gamers attention.
The 5e explosion is made up of people who want to play 5e. Period.
At Best, the rest of the hobby gets a trickle of new blood from the WOTC stone.
Yes and no.

I do think right now that the "new" fans of 5E are, by and large WAY more casual than what somebody who would bother to make an ENWorld account presume when they think gamer. There have always been casual gamers. And there is a super heavy long term obsession gamer who is 8 years old and just discovered D&D yesterday. (And had a really great day!) I'm not claiming the underlying distribution of isn't still there.
But I really do think that there are a whole lot more people who are on the casual side of things.
But 5E got here because the zeitgeist was changing for decades already. And, in turn, 5E is changing the zeitgeist. So in the near future 5E will eventually get old. (Not now by any means, it is still booming with no sign of the top here in 2020, but the day will come). But the change in acceptance of gaming is here.
And I still believe that this is a rising tide lifting all boats deal. You seem to be arguing that 5E has sucked in some number of existing gamers from other systems, it has created a huge number of new gamers for itself, and some tiny fraction of those new gamers are also spreading out to other systems. And, for now that last number is smaller than the first, so other games are being hurt more than helped. I don't think that is true. But I do think the middle number blinds everything else a bit.