If cloud vendors are working on this, they must see it as a real threat, I don't think they would put this much work into reducing their cpu resources willingly?
Why not, it's the customer that ends up paying because there's less performance per machine, and so they may need more of them. If all cloud providers use this fix then there's really nothing you can do. Some may provide true 'bare-metal' machines but I'd imagine they're pricey and a pain to maintain / monitor.
In that scenario, competition would come from different architectures. If you have one that can partition caches according to security contexts or encrypt memory at the CPU/L1 boundary at a lower cost, then you have a competitive advantage.
Graviton 2, by ditching SMT, has one such mitigation.