Compression and efficiency is often a trade-off. H266 is also much slower than AV1, under same conditions. Hopefully there will come more AV1 hw encoders to speed things up… but at least the AV1 decoders are already relatively common.
Also, the gap between h265 and AV1 is higher than between AV1 and h266. So I’d argue it’s the other way around. AV1 is reported to be capable of ~30-50% bitrate savings over h.265 at the cost of speed. H266 differences with AV1 are minor, it’s reported to get a similar range, but more balanced towards the 50% side and at the cost of even lower speed. I’d say once AV1 encoding hardware is more common and the higher presets for AV1 become viable it’d be a good balance for most cases.
The thing is that h26x has a consortium of corporations behind with connections and an interest to ensure they can cash in on their investment, so they get a lot of traction to get hw out.
On the upside, the end user needs to use up less data for the same content. This is particularly interesting under 4G/5G and restrictive data plans, or when accessing places / servers with weak connection. It helps avoid having to wait for the “buffering” of the video content mid-playback.
But yes, I agree each iteration has diminishing returns, with a higher bump in requirements. I feel that’s a pattern we see often.