I was a heavy user of Reader (and did huge amounts of work on RSS/Atom/etc), and I agreed with this assessment at the time.
More and more publishers were just putting headlines in RSS, so you had to click through anyway, and commercial blog sites were publishing a much larger volume of content, most of which I ignored. But I didn't want to unsubscribe, because occasionally there was something good.
Given that, I was finding much better content through aggregators like HN or via Twitter/FB.
Maybe they could have iterated and built something different, but what they had really wasn't useful.
[1] https://www.wired.com/2013/06/why-google-reader-got-the-ax/
[1]: https://www.buzzfeed.com/robf4/googles-lost-social-network
There was no separation of the chat friends and the people that you followed.
I've still got random people in my address books from that debacle.
Also, IIRC they specifically killed it because of Google Plus, which according to their plans should replace Google Reader and the demand for RSS.
Is this true? It certainly doesn't feel like it. Reader was a first party branded reader. Google could put ads on Reader relevant to your interests (which they'd have been more keenly aware of than if you weren't using Reader), and they didn't have to pay out the publishers.
Google killed Reader, I think, for the second reason you mentioned: publishers were neutering their feeds. Reader had gone from a tool for consuming content to a tool for being notified about content.