I see the point - but I don't think there would be anything stopping them from still making good stuff and competing in the same ways they are now. When BPs have either excess time or funding, I'd like to think it's their obligation to then figure out the best ways to reinvest that back into the ecosystem. But when a situation arises, block producers need to rise up to the challenge, dropping their own projects, to make sure the network remains operational.
Here on Steem, despite my current personal status as a producer, I still perform this function. The "value-add" of my time/work has dwindled due to a lack in the aforementioned time/funding, but I still fill my primary role here. Steem could likely also benefit from the same setup, since arguably some elected witnesses aren't interested and/or technical enough to engage - it's just not as critical since the majority of inflation goes to those not in control of consensus.
EOS on the other hand, technically has all inflation going to Block Producers. Something has to offset it.
Just as an example, under this proposed system within EOS - Greymass would continue to still be a block producer first and foremost, but second to that we'd continue to offer our infrastructure support, research, end-user application development, and all the other initiatives we choose to take on in addition to our primary responsibility. The time/funding currently exists for us to do that in addition to what we're fundamentally responsible for.
If we didn't want to focus on block production or governance, and instead say we wanted to build a for-profit dapp company, we'd just switch to becoming an elected "worker", rather than a block producer. It's the same elected structure and branding initiatives, we'd just no longer be in charge of consensus.
This creates that duality needed to offset the inflation flowing already to block producers.
In the end, I really don't think we'd lose out on anything. If anything, we'd gain something, since there would be an entirely new set of elected organizations theoretically providing new value into the system. For existing block producers - it provides a choice to them on whether they want to focus on their product or on the network itself.
I'm actually working on a post really digging into this topic right now - so I definitely appreciate the conversation. It's helping provide a great perspective and things we may have not talked about internally.