I submit three things allowed a minor mistake to crystallize into a MAJOR mistake.
1) The Ticking Time Bomb: The OGL was a time bomb, but one that would never go off as long as you kept hitting the refresh button. WotC chose NOT to hit the refresh button and tried to retrofit a cancel button onto the OGL with the GSL instead.
There was no cancel button on the OGL, by design. They tried to add one. That was a non-starter and it was rejected because the underlying GSL was not in the commercial interests of the perpetual licensees.
Your post included a lot of things in a context I had not thought about before. And I mostly agree with you.
However, I think that Paizo would have gone with Pathfinder or some OGL-version of the game regardless of a new OGL for 4E. When they announced Pathfinder, they said that they had been working on this since 2007, way before 4E was announced.
I think because of the different design ideas in 4E, they assumed there would be a good business opportunity to start out on their own, without having to depend on another company's business decision. The OGL was their chance, and they took it.
They assumed - and rightfully so - that a lot of people would not like the new game design.
2) Different Opinion on Length of Business Cycle: The OGL is incompatible with WotC's preferred length of the Business Cycle of its D&D product line. Even if the OGL couldn't be cancelled, it could be ignored as long as it was continued and re-implemented with the next edition of the game.
When WotC tried to escape that effect, nobody else would sign on. This STILL would not have resulted in competition against their own IP, except for one thing: WotC wanted to revise/reset/resell the game too soon after the last version of the game was released. The value-in-use to the customer of the last version of the game was too high at the time 4E was released.
This created a market opportunity that a well-positioned competitor could use to their advantage.
All I can say is that I was ready for a new game. I loved Book of Nine Swords and the fact that all the classes in this book could do something every encounter. I had played high-level campaigns and dreaded the fact that spellcasters had to sift through tons and tons of spells, leaving the non-spellcasters waiting. Most of the arguments for 4E ring true with my experience of 3.x. I know that this is a matter of taste and cannot be argued over. But after 10 years of 3rd edition, the people I know were ready for something new. Some play Warhammer now, most of them 4E.
So I think that WotC would have had a good chance of winning a lot more people over to 4E if they reacted differently. I do not think that the time factor made a difference.
3) You Can't License The Goodwill of an Entire Brand:
WotC should NEVER have spun off their own periodicals division (now Paizo) and allowed it to communicate monthly with their core customers while Wotc remained largely silent in communicating with those same customers. When WotC allowed that to happen, it transferred the goodwill and legitimacy as "official guardians of the game" from WotC to Paizo -- PERMANENTLY.
WotC believed it was just licensing this goodwill and at the end of the license, they would get it back. That was a FOOLISH business decision. The real world does not work that way.
If you are a big company, sometimes you start to believe your own balance sheet is REAL. You start to think that the product you make is a trademark, IP, and a brand which has very little to do with the people who actually create your products -- or who buys them. There is truth in this view -- but only to a point.
Because ANY certified business valuator will tell you that you CAN'T RELIABLY VALUE THE GOODWILL OF AN ENTIRE BRAND AFTER IT IS LICENSED.
You can SELL IT, but it is very difficult to value it after you license it.
When you sell an asset -- it's gone. When you license it for a fee, you are planning on a reversion of that goodwill at the end of the license. So the terms of the deal call for the goodwill to come back to the licensor at the end of the license.
A certified business valuator will tell you that is an inherently risky bet to expect that you will get back the same goodwill attached to an entire brand if you license it. You might get that goodwill back -- and you might not, too. All you can value is the short-term revenue stream of that license. Trying to value the goodwill of an entire brand as a capital asset AFTER you license it is almost impossible.
So it is an inherently risky business proposition to do it. Smart companies don't do it. WotC wasn't smart. When they spun off their own periodicals division AFTER they created the OGL? They effectively licensed the entire D&D brand to another company in the minds of the customer.
DUMB move.
That is so true. And you put into words what I for the longest time could not wrap my head around. I kept asking myself: why do they neglect the magazines? Why is there no real effort? The 4E AP was suboptimal, lacking the quality of, say, Age of Wyrms. They do not offer enough campaign material for the campaign books they publish. There is almost no story arc for Eberron, Dark Sun for 4E while, in my opinion, there should be something like this in every Dungeon magazine.
If they want to take what you call "goodwill" back, they need to up the quality of the magazines. And I have no clue why they outsourced them to begin with.
But you are right: this made Paizo very strong. It was the end of WotC as the sole "DnD" company. Now there are two.