I'm too young to know--did USENIX follow the trajectory of reorienting
its focus from engineering and research to sales?
Actually, quite the opposite, USENIX was getting more and more academic and research-oriented and less 'trade show.' The key is that USENIX and ALS should have been an excellent match, unfortunately, some of the personalities involved were at odds with each other. IMO: it was more of a crash of personalities/control issues - the details do not need to be repeated or aired again. Note: I was on the BOD at that time and in fact on the PC for that specific conference. Ted may have been on the BOD at the same time.
Why does it no longer occupy the premier place it once did?
As they say on Quora, "never ask a question based on a false premise." Sadly, this is a false statement.
USENIX is extremely well respected in the systems research and security community in particular. And even during these Covid times has continued to have some of the premier conferences on the same; al biet virtual (more in a minute). An issue during the time you are discussing, USENIX had evolved into "two foci" between the practitioners (which included both FOSS community and LISA types) and the more academic-oriented folks looking for respected places to publish papers/develop their tenure files.
USENIX had moved from its earlier (anything goes) - pure practitioner origins - which were also researchers, so at a meeting in a classroom at NYU, you told people you had something to say and came and did it, to a more structured (research) approach with program committees, submitted papers, and vetting and a hotel. Along the way, because it had both types of people and these were the folks that influenced the buying patterns, vendors started to show up to show off what they had. At the time of the ALS conference you mentioned, the things happening in the FOSS community - was much more like the origins of USENIX. What had for years separated USENIX from IEEE/ACM was it was where the two foci were really a single one, and thus had been together and actually considered what was potential as well as practical. In fact, USENIX was noted as the place where some of the most influential papers of the time had shown (numerous storage papers including Rusty's NFS and my EFS paper in the same session, just about any important security papers, numerous other system papers -- I could go a few pages here).
Part of the issue was ACM's SOSP was every 2 years and there was too much good stuff going on in the system world (BTW - USENIX eventually created OSDI on alternate years because ACM was just going to do it). But USENIX also published less formal papers. In fact, one of my all-time favorite practitioner papers is from another member of this list -- Tom Lyon's "All the Chips that Fit" from the 1985 Summer USENIX [which if you have never read, send me an email, offline and I'll send you a scanned PDF -- note to Tom if you still have the original bits I bet USENIX would like them]. I suspect that such a paper would never have been acceptable in any of the IEEE or ACM conferences. Also unlike ACM/IEEE (and frankly the thing that happen at USENIX when I was President that I am most proud of) is that they do not have a paywall. Anything they published from the time when all proceedings were electronic is available and slowly some of the older papers are being scanned or reprinted from the source - as needed/possible. As much as possible, all of USENIX's papers are available to anyone [which was a huge thing to do - as it cut down a lot of revenue for them -- a paywall for papers is one of the things other associations use].
A number of good things happened at the time you mentioned, as well as some bad. Knowing the parties involved both today and at that time, if today's BOD and Executive Director was given the same choices that they had at the time of the action, I suspect we might have had a different outcome. IMO to the demise of FREENIX and ALS were two of the not-so-good choices that were made, but I understand why those conferences did go away at that point in history. If it makes you feel any better, as a former PC Chair for a couple of FREENIX (which was caught with the same bullet), and as I said a member of the PC of ALS, I was very sad to see that happen and I personally fought against it. But, I was on the losing side of that argument. Unfortunately, that ship sailed, and reviving them is unlikely to be possible although I believe it has been discussed a number of times since I left the BOD.
Back to your point, USENIX may have stopped being as important to many practitioners, particularly ones in the FOSS community. Which I do find sad, but I understand the issues on both sides and why that might be so. For instance, Keith Packard of X11 fame, Steinhart, and I were all talking about "whence USENIX" at a Hackers conferences a few years back. So, if you come from that side of the world, you may not value membership or the results (BTW: my own now hacker daughter, who is a Googler, dropped her membership last year as she felt it was of less value to her); but so far USENIX has continued to be important to a large part of the research community and a set of some practitioners.
That said, I also believe in 2021, that the USENIX BOD and their ED is struggling with a financial model that works for them when they do not have the conference revenue as they had before CV-19. I hope for their sake, the current treading water situation can find a way to bring them back to what they were pre-CV-19 because the conferences they traditionally have held, are excellent (premier in your words) and I would hate to see that really go away because they have had a lot of value and so far have continued to provide it.
Respectfully -- my 2 cents.
Clem