In Vimeo’s case the decision was probably motivated more by cost. It’s not that they can’t compete with YouTube on product, but economics of YouTube just aren’t that great if you aren’t Google.
LOL. The shitty version of Youtube has always been Youtube. If you were making an amateur video Youtube was plenty. If you were an auteur and wanted to be above the fray you hosted it on Vimeo. Sadly, Vimeo has gone the corporate video route while Youtube is leveraging Google.
Vimeo knew their target but sadly that market isn't large enough to pay the bills.
If they didn't, they'd stay "shitty youtube" and lose. They decided to differentiate themselves to have a chance at finding their target market.