What you describe is also referred to as the self-hosted model. I agree with your assessment. Self-hosting can be a powerful model if we can make the server app

What you describe is also referred to as the self-hosted model. I agree with your assessment. Self-hosting can be a powerful model if we can make the server application model easy to use and manage, similarly to how it works on mobile phones. But the shared decentralisation model, aka blockchain, also has a role to play here. Digital identity should be sovereign and this can be modelled well using blockchains. To see more work in this direction check out https://identity.foundation https://identity.foundation.