They didn't "chicken out", necessarily. It turns out that making huge social networks, and particularly for-profit ones, is not trivial. They connected a few accounts this week... but they also launched in the European Union this week, they weren't even out worldwide until now.

But hey, don't you worry, everybody is freaking out again. And if BlueSky ever finishes their own proprietary interoperability protocol and that is made AP-compatible on this end I'm sure we'll have another hipster breakdown.

They've honestly done exactly what they'd said they would so far. They always said it would federate eventually, but not at first. They were even clear about it with their early adopters/influencers. They later clarified that it would be in 2024 and they've just started a small trial of limited federation a few weeks early.

Mike Masnick has covered it a lot. He's consistently reported that they are surprisingly determined to federate. I don't think there's a downside for them. They aren't connecting either of their cash cows and Threads isn't a huge moneymaker for them. It seems more an opportunity to head off the EU regulators (and poke Twitter in the eye).

It gives them the ability to compile data on people of the fediverse, though. They might not get the same depth of information as if we used their websites directly, or nearly as much as from their apps, but they still get usernames and comments and whatever other data they can deduce from that from any instance they're federated with. Of course, if they were really interested they could just scrape it.