This is only really true of Windows and Linux. As you admit, mobile operating systems don't work that way, web browsers (practically an OS) don't work that way, even macOS doesn't work that way (all apps are lightly sandboxed on macOS even if they don't opt in to it).

Sandboxing doesn't change the nature of the web, though. People use hosted services because they don't want to run things themselves, people build hosted services because they want to meet that market demand and also avoid the piracy and support costs that come with allowing self-hosting. You can imagine alternative worlds where that isn't true but people would just have different complaints.