Combination of things, but largely all stemming back toward a very puritanical view of sex making it a lot more hassle then it is worth for larger developers, and far more difficult to succeed for smallers ones. Lets take it from the top.
First, audience. Now, lets be honest here, the people who like these games are likely not coming into them from a purely "I want porn" level. It is rather telling how often that gets tossed out when in defense of censoring some games or in justifying why it is ok to attack them, as it reveals the same sort of social shaming mechanisms of the past sex negativity in the culture. There is difference between titillation and outright porn, and there exists audience desire for both. So games of this nature do have a market at least, even if niche. This is also shown by the relative success of games like Honiepop, or the popularity of dating or other sims in the east and the interests they generate in the West. That is despite the existence and easy access to porn, so obviously something about the games is appealing to an audience in a way that porn alone does not appeal to. In this, I don't know what, merely that amid the limitless amounts of porn online, if there is still an actual market for the games, they can't be in complete competition else they would cease. Still, as demonstrated by some posters in the thread, and a lot of the general discussions on the topic around these forums, the view of that audience is a very dismissive "just watch porn instead you lonely etc etc." Stigma like that alone would affect the audience demand. This is offset, in part, by the increased use of online distribution, though not entirely (lets call it "steam library shame syndrome"). But it is based entirely on a very scornful and puritanical judgment of what other people enjoy and would affect audience demand. Sort of less likely for someone constantly being told "that stuff is for loser perverts" to actually want to explore it, and sort of hard for people who do like it to share it with others when viewed in such a way.
Next, viability. In terms of making profit, the games can certainly do that. As long as you aren't stupidly expecting CoD level of sales in making these games, it does still have enough of a niche audience demand to remain profitable. As someone else pointed out, the maker of Honiepop is a millionaire so obviously it isn't a sinkhole for cash if done right. The question is to what extent of investment can you get a worthwhile return on, with more simple games like honiepop, picture-puzzle games or choose your own adventure type games being far more easily made for less, and thus easier to make profit from. I suppose larger companies could take a page out of DoA's book and make games of that sort as tests of new modelers or as afterthoughts with existing tech as a means to cut costs, but that brings up other issues I'll touch on later. With regard to viability though, the games can work to make money off of, though as touched on before, the stigma they carry is prudish and judgmental and that adds another layer to have to fight through and decreases both chances of success and willingness of investors to be tied to the concept.
After that, we return to why larger companies, despite having the resources to cheaply and easily follow DoA's idea, would be unwilling to do so. That is the greater culture mindset that is, as already mentioned, very puritanical about anything related to sex or self gratification. Companies don't want to be associated with that because it is indecent, which would hurt any sort of family-friendly image, or would incite too much political controversy. And while perfectly valid reasons from a business sense, they are nevertheless still intrinsically based upon a cultural negativity toward anything related to sex, and a heavy judgmental view of anything relating to self-gratification in general. It is "dirty" after all.
Now, all that alone is pretty much why the situation is the way it is in terms of such games in the west, though there is one other wrinkle worth mentioning as playing an impact. That is the growth of sex-negative feminism in the western culture. Puritanical judgmentalism that evolved out of the faded "free love" feminism of the past now embracing the prudish ideas of sexuality being bad in the name of saving women by enforcing the exact standards of behavior and disdain towards anything sexual as the religious fundamentalists before them, it reinforces the ideas of shame and disgust towards sexuality (albeit more heavily sexist towards trying to shame male sexuality) on the basis of claims of such sexuality causing harm to one extent or another. Regardless of personal view on this issue though, the fact that this mindset has grown in prominence, especially among the growing internet media, remains a fact of note and also plays a part in why such games are less likely in the west. Torch-bearing controversy mongerers, shrill authoritarian condemners and self-styled would-be censors are sadly something that would need to be faced, and adds yet another layer of bullshit towards any project like what is suggested. Existing companies would be fighting an exponential conflict of not only established cultural mindsets, but also the re-affirming sexual negativity and condemnation (as well as new-wave moralizing and rabble-rousing) of the political group. New companies would face, well, open scorn, attempts to blacklist and attempts to censor as campaigns waged on steam have shown. It all makes it far more effort for a profit that would be more easily obtained with other sorts of games and subject matter.
In the end, it all flows back to the same source point as to why the west doesn't make such games: The culture of sexual puritanicalism is still strong, and while it has changed reason on why it is justified, the attitudes and consequences of violating that taboo are the same now as they were years ago.
