I suspect the seeds of these things were sown very early on. Certainly White Dwarf stopped advertising non-GW products nearly thirty years ago. It often happens that the real seeds of decadence are sown just when things are perceived to be in their glory days. I remember a religious pastor I knew once making this same point regarding churches. Could it be the case also with GW?
There was a nice article "Freedom in an owned world" originally published in Vector Magazine which used to be on the internet but has unfortunately disappeared. It was an interview with various authors who had worked on Warhammer novels and such, and offered a kind of skeptical view of GW in the late eighties early nineties. Many of those criticisms seem the same in essence to the ones that are made today. Most notable was an almost obsessive fervour about their intellectual property.
As to what was their original source of success, I dont know because it was probably a bit before my time. The Fighting Fantasy gamebooks were the only thing i can really identify as a real winning idea. But as far as I understand those were a seperate venture by Jackson and Livingstone with the publishers, not GW as such.
Warhammer ever since I became familiar with it was always something that owed some of its success to hype, the kind of hype that can only be generated by some established status. After all the rules did not quite work really. We were told in white Dwarf they were great and we saw these pics of great tense battles with beatiful minis. Meanwhile, when we tried to play them, often our minis looked awful and one side or other won easily due to rules imbalances.
As i mentioned above, I can see why a company resorts to stifling opposition and propaganda. Relying solely on generating new winning ideas is rather like hoping that lightning strikes twice. However, morally, it should not be so essential to be a massive success and make lots of money. Rather just to do what you love, take satisfaction out of genuinely giving something to customers and make enough to get by in reasonable comfort. I daresay that that mentality of giving something to the gamer continued to exist or coexist with the new one even after the logical foundation had been cut from under it, just by inertia. But eventially it seems to have died, and that is the situation we have now.