[brk]

Whenever you outsource anything to an "as a service" company, there are a couple of sweet spots where it makes sense, and a (generally) larger area where it does not make sense to pay someone else to do the service for you.

Amazon makes sense for companies that are too small to dedicate an admin to a server and/or to load that server and bandwidth to 60%+ capacity. At some point, when you have a need for a small server farm and the uptime of those servers is core to your business you will likely find it is more cost effective to do the operations in-house.

Think about companies like Salesforce.com, for their datacenter needs, I don't think you could ever justify Amazon (or a similar) service.

As a rule of thumb, I charge customers in my colo facility $60/U/mo as a starting price. You get a shared pipe and relatively unmetered/unlimited bandwidth (for "business" use, no torrent hosting or stupid shit). For a little more you can get dedicated bandwidth, 95% billing, etc. I've got someone who is looking at bringing in a 3U backup server, they'll pay $200/mo to have 3mb dedicated bandwidth and the colo space. That server will have a few TB of data replicated from their main site, I don't think S3 would make sense for them.