I mean, it's pretty simple: people need to be happy in order to be productive.
Well yes but they can't be productive if they're playing games.
Of course. There's a balance to be struck, and modern capitalism encourages a shitty one that leans way too heavily on productivity, leading to an overall worse society. (Besides, the reason people are productive is so that they can be happy.)
Modding APIs also bring downsides by being a complex subsystem of the project for the maintainers to deal with, taking away time that could be used to solve other problems in the software,
but it also increases the capabilities of the project by approximately ∞%!
…at the expense of taking far more time for those capabilities to come to fruition.
and (in my experience) they often lead to fracturing of a community and too many options to choose from.
this is good! i like having choices. you can always choose not to use mods
The fracturing of the community also leads to a fracturing of the effort. I would much rather have a few good choices than many bad choices.