Now, as far as fragmentation goes...back in the 2E heyday, they were releasing 4, 5, 6 D&D, products a month, every month, and not just (or hardly) little 64 page adventures. There is no way you don't start canibalizing your own sales at some point, and start to see product quality fall.
This was also a time when TSR faced a lot of competition, and lots of other mid-sized game companies where also churning out lots of product, using all sorts of disparate mechanics. The Dancy response: pull back what WoTC released (though in hindsight they still released a lot in 3Es early days), use the OGL to bring more unity in mechanics across the market as a whole, and let 3rd parties release all that supporting material and canabilize each other. It seemed to work, at least for a while.
Yep, in a high competition market TSR needed to drive down the total number of products released and concentrated on core competencies instead of coming out with the campaign setting of the month. My gosh, how many settings did we end up with?
Add on top of that numerous new games and you're setting yourself up for disaster.