One advantage of local AI is continual learning.
When I say 'moat' I don't mean moat specific to a company vis-a-vis other companies, but 'moat' specific to the set of inference providers vis-a-vis self-hosted local inference.
The moat consists primarily of being able to batch inference requests.
If we pretend people weren't interested in long context-lengths, there would be a moat for inference providers. who can batch many requests so that streaming the model weights (regardless if from system RAM to GPU RAM; or from GPU RAM to GPU cache SRAM) can be amortized over multiple requests.
However people do want longer memory than the native context length.
One approach is continual learning (basically continue training by using the past conversation as extra corpus material; interspersed with training on continuations from the frozen model, so it doesn't drift or catastrophically forget knowledge / politeness / ...).
However this is very expensive for inference providers, since they would have to multiply model weight storage with the number of users U=N. For a single user the memory cost of continual learning is much less since they only need to support a single user, and are returned some of the memory cost through elimination of KV-caches, and returned higher quality answers compared to subquadratic approximations of quadratic attention.
An advantage of continual learning is that the conversation / code base / context is continuously rebaked into model weights, and so doesn't need KV caches! It doesn't need imperfect approximations to quadratic attention, it attends through working knowledge being updated.
Nothing prevents local LLM users from implementing this and benefiting from the dropped requirements of KV caches and enjoying true quadratic attention implicitly over the whole codebase, or many overlapping projects indeed.
The only remaining moat of inference providers vis-a-vis continual learning local LLM's is the batching advantage, plus the gradient update costs for continual learning minus the KV storage and compute costs, minus the performance loss due to inexact approximations to quadratic attention.
This points towards a stronger incentive for local hosting than currently realized (none of the popular local LLM tools currently support continual learning, once this genie is out of the bottle it will be a permanent decrease of the inference provider moat, the cost of which can't be expressed merely in hardware or energy costs, since it is difficult to quantify the financial loss of inexact approximations to quadratic attention, the financial loss due to limited effective context length and the concomitant loss in quality of the result)