AoE Fall off damage.

[MaraD_]

Diminishing AoE serves a purpose on AoE actions that are also included in the single target rotation. It allows them to have a potency worthy of the time/effort it takes to put them into a single target rotation, without making them overpowered when they're actually being used on groups.

However, I feel that AoE that is strictly for AoE should just be a flat potency across all targets, since it doesn't need to take single target vs AoE balance into account.

partly correct, but mostly incorrect.
as the 2 posters above me stated, its to prevent mass pulling in 2.0, when most jobs lacked good AoE options. (and speed run Wanders Palace in a few minutes, instead of 20-30minutes)
The more enemies you pull, the less damage you deal.

(and originally, only the jobs who actually were solely picked for the purpose of mass pulling were effected. WHM doesnt use, nor never used Holy in single target)

If they wanted to do this to Flare, which was a spell incorporated into single target uses, it could have a smaller potency on hitting every target after the 1st, but it didnt need to continue to get lower after the 2nd, then 3rd, then 4th, etc.
It could do the same damage to every target, except the primary target, and be fine.

(But in all honesty, having a PLD super pull, hallowed ground, BLMs Flare, WHMs Holy, BRDs refreshed MP, while AoEing, and you couldnt do this with other DPS, nor WAR/SCH. Part of the reason WAR gained more -x% of the enemies damage style mitigations in 2.1)