In my book, the innovation in Lambda is, above everything else, about the billing model. My company moved the work of 40 dedicated servers onto Lambda and in doing so decimated our costs. Paying for 1500 cores (our current AWS limit) in 100ms increments has been a game changer. I'm sure there are upsides to adopting the same programming model with your own hardware or VMs, but the financial benefit of Lambda will not…
Couldn't someone write a virtualized VM that runs inside Lambda, thus providing zero (or Lambda-equivalent) startup costs for generic VMs? Then the VM would just be a function running inside Lambda, transforming incoming user data and then storing the result in a database, after which it would disappear.
Or maybe the OS just is the problem? One model of bypassing it is Lambda-like services, which would be the more centralized solution, while the more decentralized solution (of the two) would be bare metal/unikernels, which basically achieve the same thing: (close to) zero startup time/cost (~30 ms for a HaLVM unikernel).