The Eighties were shaping up as a time of radical change for these commercial properties. We saw creators go to town mangling, reinventing, reinterpreting, and generally twisting existing properties because "the market demanded it" and pretty much just because they could. Also, a new toy line was coming out. The new design made for an excellent toy and the name was readily identifiable, associated with Superman, and had commercial value. "Brainiac" is a major foe of Superman. "Scarybot 2000" is not.

 

The "original" interpretation of Brainiac had nothing to do with computers or the Robot Masters of Colu. He was simply a crafty space villain with a pet monkey, miniaturizing and collecting alien cities for scientific study. When National received word from an advertiser they were producing a computer gadget called "Brainiac," they thought it would be best to tie the two together by re-imagining their character as a super-intelligent computer. The rationalization for his human form, space monkey-pal, and later son, Vril Dox, to serve as stealth agents for the Robots of Colu all came after the fact.* 

And again, it's worth noting, none of that went away. All of it was still a part of the character's history with this change. Nothing in Brainiac Five's history needed to change (except possibly the story of Pulsar Stargrave). Nothing in LEGION '89 had to be rejiggered. Everything still worked. We just now had a very different, much more menacing version of Brainiac as a result.

* Did we ever see a single Silver or Bronze Age story in which Brainiac did anything for his supposed masters back home? Just curious...

By not "making it all neverwas" the old version remained as a storytelling resource, to be revisited as DC chose. 

As for the "general public never knows what it's buying anyway and doesn't care" argument, I contend that they often do. Not specifically in all cases, but Brainiac was a known quantity from the Filmation cartoons and Super Friends as well as the comics. Marketing the Ed Hannigan design as "Schematik!" or "DeathMetal!" (two attempts with more marketing sincerity, if that isn't a contradiction in terms) might have sold perhaps, but would have done nothing to protect and promote the existing intellectual property of "Brainiac," and could have left some with a passing familiarity with the franchise asking, "Schematik? I thought the robot guy Superman fought was Brainiac..." 

The old character did have value and continued to do so. The new one readily allowed for that in a way that the coming reboots would not.

No one on this board is starting a thread asking, "What did everyone think of the brand-new, completely unrelated to any previously existing character Killg%re? Did you like that he wasn't based on anybody?" The fact that the new Brainiac was Brainiac made him interesting, and as we see demonstrated here, controversial even today.