This doesn't sound so weird to me. No one was working on Google Reader. The traffic to the web app was negligible. It generated little to no revenue. And even the API traffic probably didn't amount to much. It just wasn't on the radar.
The fact that got missed wasn't that Reader was a popular app, it simply wasn't, period. What they missed is the demographics: the specific people who relied on Reader, though few in number, are disproportionately loud and influential tech leaders and journalists. So they were shocked at the outrage.