This is what bothers me. Their live service doesn't resemble what they consider "the competition" but Blizzard won't do vanilla servers. People who want a vanilla experience are SOL basically. I'm not one to gripe about expansions and updates ruining things because I think that sets a bad precedent (I didn't like X expansion so I should be able to open up my own thing).... But vanilla World of Warcraft is nothing like Legion, the game is more unsocial than ever. Sure, some of that is due to QOL improvements but now it's basically an offline RPG with a chat box and people running around with very little interaction.
I think the issue is that there are a non-zero number of people currently playing Legion and paying for WoW that would love to have legacy servers, but still play current WoW regardless. As such, if a private server goes up, (especially if it is free) these players might stop playing live WoW and instead go there. It isn't like the only people who would play legacy servers are people who want no other WoW experience. So leaving legacy servers up does cost blizz money and hurts their current product, regardless of whether they have their own legacy servers or not.
Do I wish they would just say fuck the money and allow the servers to stay up regardless of potential losses? Definitely, players wanting legacy stuff deserve something to play. But I don't pretend to know the full legal implications of something like that, nor am I a business that has to consider things like investor opinions on the matter.
At the same time, as a current WoW player I can't say that I want blizzard to spend any time or resources on their own legacy servers, since it would directly compete with resources towards what I enjoy (current live WoW), and blizz has proved in the past that they already have issues delivering content at an appropriate pace without worrying about legacy stuff. In addition, I've said before but I think the number of players that play on legacy servers that are free because of nostalgia is far from 100% of the players that would play on legacy servers for a price because of nostalgia.