You're talking about a company with $50B revenues; $10M isn't even pocket change.
Running a "service on the side" doesn't just cause "focus" problems for senior management. It creates legal, technical, and reputation risks which far outweigh the few million bucks of profit Google might make.
I think the real cause is they don't want to promote a different platform (i m thinkin g+) as the mainstream source of content stream, and supporting RSS as a protocol is only going to dilute that goal. Even if they were making a profit on reader, they would still kill it (unless it's fuck-you profit, which it certainly isn't).
I don't agree with their goal, but since i m not a google customer, and i don't pay them money, i don't get to decide their goal.
Ha, ya, I just said the same thing in reply to piqufoh regarding pocket change. The technical and focus issues I think could easily be handled by hiring a few people and having them 100% dedicated to Reader. $10M should be more than enough for that. You'd still be talking about revenue per employee of at least a couple million. (Google as a whole, with ~$50B revenue and ~50k employees averages about $1M revenue per employee.)
The potential legal and especially reputation issues I hadn't considered though. If they're trying not only for internal, but also external focus - essentially shaping how people think of the company, which seems obvious now that you mention it - I could see how they would consider 'niche' products like Reader detrimental even if they do make good money.
Running a "service on the side" doesn't just cause "focus" problems for senior management. It creates legal, technical, and reputation risks which far outweigh the few million bucks of profit Google might make.