I used to think the same, until I saw a small in ear product (like bragi headphones for instance look great in real life), and it makes the airpods look extremely dumb.
I'm sure apple will change the design to make it more of a compact design with a next major refresh (probably a few years down the line), but right now apple is playing it safe with their design due to there being potential compromises in battery life and connectivity if they were make it more compact.
In this sense other manufactures have leap frogged apple's design, however they're also plagued with connectivity issues sometimes, so in that sense they lose out regardless of the better design.