I just realised there was another problem: no internal customers. If there had been an important team inside Google keen on using App Engine, that might have helped them figure out the right feature set. But instead they were just guessing at what users outside Google might want. (Compare to Gmail, which was and is very heavily used inside Google.)
That doesn't help though, as Googlers learn to write apps the Google way (massively horizontally scalable, managed NoSQL data service), which looks very much like App Engine. Outside, people still wanted to run their relational databases and large VMs, and App Engine didn't let them do that. That's why we came out with Compute Engine.
