All Things D has a good article on the closing of Google Reader. It contends not only did Reader not even have a product manager or full time engineer when it was closed, but now every team needs a team dealing with privacy issues, with lawyers and others, and since google wasn’t making money off of it, they didn’t want to put those people on. And it claims it was too integrated into google apps to sell it (though I don’t believe that).
Interesting point, but I still think they could keep their users happy and keep it going, especially after killing the rest of the market with it, but we are all finding alternatives now, and will be moving to them if we already have not.