Latency springs to mind, firstly. It's hard enough getting a local DAW with audio interface working fast enough reliably with a high CPU load to ensure that a performer is happy with it. Adding in journey to/from the cloud, I'd think would make that part of it a non-starter.
Your quoted 10mS is doubling what you already have, and I'd wager there's more to it than that - particularly if you have an up and downstream connection to take into account. Put the buffer size up on your Ableton setup to 30mS, and see if that is playable.
Also 10ms more is already too much. If I had to decide between cool cloud synths and the latency I'd go for latency.
Music is all about timing. Latency is crucial. 11.6ms is already too high for playing anything but instruments with slow attacks. Adding 10ms more would make it almost unusable for anyone that actually plays with their fingers.
What you describe could probably be used for musics that are programmed rather than played, but that's already a niche product.
I just set my Ableton Live to 300ms and it was actually o.k. I think the reason is that a lot of people don't actually 'play' their instruments these days - at least in electronic music.
Instead, they program their drums by putting midi notes on the grid and then listening to the result. The same with synths etc. So when I work this way, the 300ms latency are actually bearable. Of course it would be different if I used drum pads to play my drums 'live'. But honestly I don't know many people who do that and when I watch tutorials on YouTube also almost no one is doing that. A lot of electronic music producers 'play' their instruments with their mouse button.
To most DAW users, 300ms is unacceptable, so any service that processes audio on a server needs to make this caveat very clear in their documentation. The problem with such a business idea is that local computers run DAWs just fine, so very few people would seek remote audio processing.
High-quality VSTs requiree a lot of CPU power. Even my 16-inch MBP easily heats up once I add some more advanced VSTs.
I would rather pay X$ per month and have my music production work station in the cloud and interact with it from any old device with a fast internet connection.
Working with a buffer size of 512 samples, I currently have a latency of 11.6ms in Ableton. Adding another 10ms latency through the internet connection wouldn't be a drama for me.
Working in the cloud would allow me to easily upgrade or downgrade my system based on my needs, better collaboration with others, automatic backups, one-click access to new VSTs and samples, etc.
This set up would probably be less ideal for people who actually have to record a lot of 'real' instruments but a lot of music is only created in the box today with VSTs.
But I'm surely missing something here. Why hasn't this been a trend yet?