And provided your management costs are lower than Amazon's profit on S3.
There's an infection point somewhere at which owning your own hardware and paying someone to acquire, build, manage, and maintain it becomes cheaper than renting from someone who does the same thing at scale and makes a profit off of it.
Dropbox is probably there, but many small web apps are not.
Keep in mind that that doesn't just result in more costs : it results in limits on scaling.
Suppose you are on S3 and you can serve a customer x Mb/$. Now you're limited to products that you can charge more for. Suppose you get data served to customers on dedicated at x/10 Mb/$ (easily doable, and compared to S3 I bet x/50 would be doable).
Isn't this how products like facebook video, vimeo (and thousands of porn sites) survive ? If you calculate how much it would cost to serve 20 Mb out from EC2, you would never ever be able to pay that using advertising revenue, even if you got as much as TV gets.
So that reduction in price that comes from not using the cloud doesn't just go into your pocket : it enables new business models that just aren't accessible to you otherwise.
Also can we stop pretending that the alternative to the cloud is buying servers from HP and colocate them ? That's simply not true. There's any number of projects that would enable you to slowly scale up that aren't EC2. It's more work, certainly. But it's worth it at quite small scales.
And in some ways (e.g. geographic reach) clouds simply don't match existing dedicated offerings. Not now, and at a 20% yearly price reduction it'll take them decades to match dedicated server rental.
Obviously I'm not claiming clouds don't have advantages. But you're paying quite a high price for them atm.
Currently, S3 will provide bandwidth out for 300TB/month at ~$21,000.
At our web host the same bandwidth would cost $1800.
At our CDN, the same bandwidth would cost $3585 to $4791 depending on the number of points of presence you'd require (6 vs 17).
S3 and its extreme availability profile is nice, but its not cost effective when the difference between pricing vs the lowest-priced option is almost $20,000 a month.
To me, the main alure of S3 was never amazon's architecture or HA, but that you no longer had to manage your storage servers and add capacity in a stepwise process. 7 years ago, to do this you were stuck with GlusterFS or even MongoFS.
Today we have OpenStack, Ceph, RiakCS and others providing battle-tested open-source solutions that anyone can run so there's much less of a reason to go S3.
I like to compare Amazon to Akamai with the statement of "yes, they're the best or close to it; but do we need the best?"
it's entirely dependent on whether or not you know what the hell you're doing in a datacenter. if you don't know what you're doing, you'll never hit any such point.
Having done the math on this project in a previous life, I would also add that having to run app logic on EC2 instances and the outbound network costs are the true financial killers for S3.
S3 raw price-per-gig is somewhat competitive with what Dropbox built, but the ancillary things around it are not remotely competitive.
There's an infection point somewhere at which owning your own hardware and paying someone to acquire, build, manage, and maintain it becomes cheaper than renting from someone who does the same thing at scale and makes a profit off of it.
Dropbox is probably there, but many small web apps are not.