The problem with this plan is that it doesn't really tackle the first rule of the Internet: spam and abuse make everything suck.
The last really popular decentralized service was email, and users migrated to large providers because they had better spam filters. Also, setting up your own mail server has become increasingly difficult, due in part to anti-spam measures. As a side effect, email has become pretty lossy.
Centralized services are far from perfect on this, but they have a somewhat easier time of it. They can fund dedicated teams to deal with abuse. So, the result is feudalism, where you join a larger organization that provides some measure of protection. (Not enough protection, according to many people.)
I'm hopeful that Sandstorm (or something like it) will make it easier for people to run their own server-side software, but it seems more for private use; you can publish a blog but it's not designed for large-scale sharing like a social network. That still seems like an unsolved problem.