Whatever you do, do not reduce the number of colors. People actively choose colors to not have similar colors side by side. Having three similar colors in 16 player game is not a big problem, if one is in left, another in mid, and last one in right. But having only 16 colors, means that last one can end up with very similar color to his neighbor. And that is a problem.
Also many players have their favorite color. And if that is not available, they choose similar colors. This makes it much easyer to memorise/remember players in 16 player games. Of course this is quite irrelevant in 2v2, but it helps a lot in 16 player games.
Also there is probably some other, personal reasons for some players. They chose a color, or similar color, that they see better or are more used to or like better etc. This does not mean, that they will deliberatly put two very similar colors side by side, but only that they have some choice. And playing a game rather than looking at tv is something to do with wanting to have choices, maybe.
And it is not like those games do not exist. 16 player survival was very popular lately, and some 8v8 maps are regularly played. too.
On the "color naming problem". People use names, half the name, first 3-4 lettres of the name. Or the spot of the player, if available. No need to invent special very long names for colors. People dont use those today and probably wont use those in the future.