That's what a lot of people think until they run Vicuna 13B or equivalent. We're just 5 months in this, there will be many leaps.
Not to mention it's easy to run stable diffusion, but midjourney is still a good business. I can run sd on my laptop, I still pay for midjourney because it's convenient, the out of the box experience is better than any competition, and it keeps improving.
If the result here is as marginal as it seems - a few months of advantage in output quality and a slightly more sleek UI - the capital-intensive play doesn't work. The featuresets that industrial users want the most depend on having more control over the stack, not on UI or output quality. The open source models are stepping up to this goal of "cheap and custom". Casual users can play with the open models without much difficulty either, provided they take a few hours to work through an installation tutorial - UI isn't a major advantage when the whole point is that it's a magic black box.
That can be quite a barrier for entry for non-powerusers. I wouldn't underestimate serving casual users, considering that the alternative is OSS i.e. giving your shit away for free.
It will only get less and less expensive for Microsoft in terms of cost. And more and more effective for Microsoft in terms of results delivered.
How do you compete with free? That's the question. The previous internet experience has already shown us that "also be free" is not really a sustainable or even effective answer. You have to be better in some fundamental dimension.