Water cooled heavy machine guns made sense at first because military thinking of the time held machine guns as weapons of defense, even during mobile warfare, thus it made sense that each gun would be accompanied by a team of three to four crew giving plenty of bodies to hump gun, tripod, ammo and water. As doctrine changed and called for more mobile firepower, water cooled guns stayed in the static defense and sustained fire role, and squad and platoon level sustained fire went to the light machine gun, manned either by a single soldier or sometimes a crew of two. Obviously, lugging round water for cooling was a bane on mobility, so light machine guns were invariably air cooled.

The shift away from water cooling can really be seen to come about from the end period of the Second World War with the birth of the General Purpose Machine Gun, or GPMG (with weapons such as the MG42 and the later Belgian FN MAG and similar). The GPMG concept sought to do away with the separation of "heavy" and "light" machine guns by combining features of both in the same package, which simplifies logistics, squad organization and fire support management. In a GPMG, the squad level gets it sustained fire support from a belt fed weapon, which will provide sustained suppressive fire from a bipod more effectively than its magazine fed predecessors such as the Bren Gun or Browning Automatic rifle, as you do not have to change a magazine every thirty or so rounds, with overheating being managed by having heavier replaceable barrels, and having machine gun doctrine based around controlled burst fire to maximize efficient use of both ammunition and spare barrels. In a more static defensive role, the GPMG easily converts to the heavy weapons role by simply mounting to a tripod and providing a good stock of spare barrels and ammunition. If all these things can be provided, a GPMG can be kept firing continuously.

The fact is that even in the most well stocked defensive position, water cooling adds one more thing to run out of and one more thing to have to lug around. Water is heavy, it takes up a lot of space, steam gives away the guns position and when a water cooled gun runs out of fluid, it is invariably useless. Spare barrels on a GPMG, as long as they are not melted from misuse or lost, can provide continuous fire almost indefinitely as long as the gun crew manages its rate of fire carefully. The only situations where a water cooled weapon would hold the advantage would be some sort of static, fortified defensive position, such as part of a fort or Maginot line type bunker, such as seen on this Swiss MG11. However, such static defense fell out of favor after WW2 alongside water cooled machine guns. Interestingly, you can still see water cooled weapons in the reserve armories of some nations, notably Ukraine, where obsolete Maxim M1910 machine guns have been in use by both second line Ukrainian troops and pro-Russian rebel forces in the Donbass conflict.