A bigger reason AWS was chosen was because AppEngine, IIRC, back in those days could not support WebSockets (among other things), as Google's frontend Load Balancers that the predecessor to GCP used didn't know how to deal with it. The Chrome team was pushing heavily on new Web APIs like WebSockets, but by the time they were ready to ship to market, our own cloud infrastructure didn't support it yet.
I'd go further and say that, using internal infra to host employee 20% projects that are not really for production, is the kind of dogfooding that would have generated the pain points necessary to make a product like AWS, because those hobby workloads are far more similar to the workloads the average GCP customers deploy. Because we didn't really prioritize that, we kind of missed the boat on Cloud and was a late entrant, even though most of the foundational technology (eg Containers) we already had a long time ago.