It initially became a thing in Japan because Japanese has fewer phonemes than most mainstream languages, so it was easier to make. Then it gained popularity for the cute characters and the freedom it gave to people who would go on to be music composers. Many popular Japanese composers got their start making and uploading Vocaloid songs on Youtube/NicoNico. On top of that, they have had a series of well designed rhythm games on several platforms for decades now which were pretty popular. These days they have a fairly popular mobile gacha/gambling game too.
Nostalgia is probably also a big driving force since many people grew up with either the music or the games.
These days it's still pretty popular within the anime fanbase outside Japan. Pre-Covid there used to be a vocaloid concert series every year which would alternate between Europe and US tours. The reason it hasn't gone too much more mainstream is likely that English and related languages have thousands of phonemes, so making a good voicebank is significantly harder.
I'm not sure you can paint the Japanese music industry like that? It's more like, this gives indie songwriters an easily accessible tool.
I didn't mean to. I was just wondering why Vocaloid is so popular specifically in Japan.
From Wikipedia:
> In August 2010, over 22,000 original songs had been written under the name Hatsune Miku. Later reports confirmed that she had 100,000 songs in 2011 to her name.
(Admittedly, those are not unlikely all offshoots of the anime/manga/etc. fandom though.)
Vocaloid music has a huge following in the US. It's just a subculture thing and not part of the mainstream sphere...which is a good thing.