Their explanation was usage was declining. And despite the fact Reader users are vocally upset, I have seen no evidence that contradicts that.
I'm also willing to bet that if there was a decline in Google Reader users, it had something to do with the web app being neglected for so long and Google having taken away several useful features in the last couple of years.
Anyways, “usage was declining” was their argument for pulling the plug, but not an explanation of why they never tried to capitalize on the service.