A big reason is that competing with them on equal footing is a monumental task. You are working against network effects, heavy duty marketing, integrations into other products and a whole army of developers.
But network effects and marketing are irrelevant for products that can't be used in your country because they violate local laws. If some Google product can't legally be used in the EU, then it has zero network effects there and Google wouldn't waste money marketing it there.
Also, the competing EU-based service might be strong competitors to the ones in the U.S., among people like me who are privacy conscious. I don't use Google services, but I'd be happy to consider using GDPR-compliant services based in Europe.
I think you misread the comment thread. You are just restating my point. I agree with you. I was talking about the current (previous?) situation, where US and EU companies are on equal footing on the european market.
Developing the product itself isn't the reason.