Yes, inferior products prevail from time to time, especially when those negative externalities you mention help consolidate a dominant position.
But social networks do not charge money. People are free to open as many blogs as they want. If they didn't when they were raging in the early 2000s there must a reason.
Reality is complex, especially human motivations. But to argue that blogs are a superior for the mainstream public to share themselves to an audience is a bit intellectually unfair.
Like... distribution?
Exhibit A being the QWERTY keyboard most of us are typing on right now.
Most people didn't blog in order to produce great art or advance human knowledge. Those who did, they tend to still blog.
But most regular Joe bloggers just wanted to share ideas or experiences with other people, connect with them, and hear _their_ ideas and experiences. Writing a 500-word blog post was just the means to start a chat in the comments section. For them, Facebook or Twitter do it better.
I remember when Tumblr started (it didn't have a specific culture yet). Some of my blogging friends opened a Tumblr just to share links and pictures, and kept to WordPress for long-form posts. Eventually, they quickly started spending more times in link exchanging and commenting on Tumblr than on WP.
I think what has changed in the last two decades or so is that a lot of new users have come on the Internet and this new generation of users spend most of their time in walled gardens thereby making the bloggers look like a small minority.