An ISP is an Internet Service Provider. Cloudflare wants people to use their services and boasts that these are "safe" because you're not "directly exposed" to the Internet. In other words, they're proprietary.
The problem with all of this, regardless of whether Cloudflare is good or evil, is that it's a huge tie-in. Once companies are using some or all of Cloudflare's offerings, they're stuck. Should Cloudflare go down, there's nothing anyone can do but wait.
Also, when companies have deployed proprietary, non-standard solutions, moving will be expensive and arduous, and Cloudflare will jack up prices.
They're not becoming an ISP at all. They're becoming a service provider, sure, but of proprietary stuff intended to lock people in to using them and only them.
You are right. They are renting dumb fiber interconnects between their PoPs, their datacenters and to various IXs and then they are asking their customers to rent dumb fiber interconnects from their offices and datacenters to connect with nearest Cloudflare PoPs and then use their proprietary services within that network, usually to reach eyeball networks (the end user ISPs).
In this way, they slowly become the largest customer of transit ISPs and become the largest content providers for eyeball-ISPs. Once they get into this dominating position, they can pretty much command those ISPs on price and terms.
They're just a private, more efficient network than the internet. I wouldn't really call this proprietary lock-in - they just accept and deliver packets over IP. There should be lots of these networks (admittedly, there aren't...).
If anything, this Cloudflare Network Interconnect thing makes them less proprietary. Now you are on the same playing field as the services hosted inside their own network - you could, for example, set up your own network of datacenters and make your own CDN on top of the Cloudflare network.
> Magic Transit attracts customers’ IP traffic to our data centers by advertising their IP addresses from our edge via BGP. When traffic arrives, it’s filtered and sent along to customers’ data centers.
If they're passing traffic back and forth between the Internet and your datacenter through a direct connection you have to Cloudflare, then that doesn't seem to be very far away from CF being an ISP.
They already have the huge network, all you need is to set up a peering connection to them and have the CF enterprise plan and you can serve out traffic to the Internet via their network.
