My biased take as the architect of Workers: It's a classic Clay Christensen innovator's dilemma.
V8 isolates seem "worse" on their face (e.g. mostly incompatible with non-JS apps, more difficult to secure), while aiming down-market. The hyperscalers' biggest existing customers aren't asking for them; they are asking for more and better micro VMs to run their existing codebases. It's only the little guys looking to deploy greenfield apps with low ops overhead and on a tight budget that really appreciate the Workers model, and to AWS these seem like small potatoes. Meanwhile there's a huge amount of investment needed to build out this entirely new and different way of doing things (we've been working on it almost a decade now!). In the worst case, this investment is wasted, and in the best case, cannibalizes the existing product line.
There likely many people at AWS who recognize the dilemma, but still cannot push the organization in the right direction. Too much inertia, too many stakeholders who don't get it, because it's unintuitive. When orgs get big they just cannot take disruptive steps, even when they were built on disruption in the past. They only finally come around after the new disruptor is eating their lunch, but by then it's too late.
