I can't see a practical way that they could have done both that
and made Colonia's development player-driven to anywhere near the extent that they have (and it would have been a lot less interesting without that aspect). The exact format of the CEI CGs ... could certainly have been better, though I don't think it would significantly affected the results. The groups that won were the ones with an interest in the region - plenty of the biggest bubble groups either didn't try or didn't get very far, while some of the later rounds were essentially won by dedicated individuals - and generally for obvious reasons it was the somewhat exploration/science focused groups/subgroups who usually succeeded.
Of course, plenty of the CEI groups, especially in the later rounds but including one first round winner, didn't have an associated bubble faction.
(The patchwork naming and setup of the systems, stations, factions by the very diverse CEI groups also I think gives a far more interesting result than letting Frontier do it all - compare Colonia and Witch Head for example)
Certainly there is the issue that after the first couple of years all the space in the region had been claimed by one group or another. That would have happened anyway, and probably about as quickly, even if people had had to adopt NPC factions, of course. (Again, see the
Mahon Witch Head Nebula)
I think the problem is that since the CEI CGs ended - over three years ago, before the PS4 release! - there has been no route for any other players to settle a new system in the region, and none of the few systems added since have had any obvious reason for players to immediately rally round any of their NPC factions, so they just got absorbed by whichever group was nearest [1].
The CEI CGs certainly ended at the right point - pretty much everyone who was seriously interested at the time got a place - but there should have been a (limited, difficult!) method for ongoing development. Just a few systems a year, nothing more, to avoid the region expanding beyond its actual player population, but to allow more recent arrivals to contribute visibly to the region's history without stepping on existing toes unless they wanted to.
[1] There's a theory that Frontier was waiting for the various CEI groups - considerably shorter on space than in the bubble - to eventually start beating each other up for extra territory. Obviously they weren't generally about to, a few limited skirmishes aside ... and even this current conflict is in many respects still a limited skirmish, though a bigger one ... because for many reasons it's easier to defend than to attack.
Sure, and that would be a much easier way to get Federal ships, right?
But yet again, see also Witch Head, which now has a distinct and entirely predictable lack of Federal and Imperial ships in its shipyards. (Also, not much actual activity - you picked the right nebula for meeting people)
One of the very clear legacies of the original vocal pure-exploration settlers was the region's independence from the superpowers. But then, based on player-led development, they didn't really want it anyway. There are three Imperial-based, two Federal-based and no Alliance groups among the CEI [2], out of forty-odd. And there are solid lore-based reasons for the NPC superpowers not to care that much, too, I think.
[2] Imperial: Colonists of Aurora (2), Likedeeler of Colonia (3), Marquisate of Valac (5) (the latter being explicitly ex-Imperials, of course) ... and I guess you could also count outside the CEI (and outside the region) the Blue Star Line outposts on the highway, to an extent?
Federal: INO Research (3), Earth Expeditionary Fleet (5). And INO Research's original bubble faction is basically irrelevant nowadays - they moved up here wholesale when the opportunity arose.
(brackets are CEI wave of entry)
