For virtual machines, whether economies of scale are important depends on whether you define cloud based on minimum time units - hourly or minute increments - o

For virtual machines, whether economies of scale are important depends on whether you define cloud based on minimum time units - hourly or minute increments - or in service expectation - the provider doesn't work particularly hard to keep your machine up on a given server but it's automatically brought back up when the underlying hardware has a failure. If you define it based on minimum time of compute, this means having enough spare capacity to handle highly variable demand and the resources to absorb the costs of having the hardware sit idle. If you own your own datacenter and there are physical machines, you can turn off the power and not pay for it so as long as the initial investment is paid off, it doesn't hurt too much financially. Without your own data center, the cost is fixed regardless of whether the servers are in use or not which is why we (prgmr.com) do not plan to offer hourly pricing any time in the foreseeable future. Someone with a larger user base is also going to be able to negotiate better rates such that idle machines do not hurt as much. DO is currently "cloud" based on pricing and not necessarily how it globally provides service, as at least some subset of VMs are subject to routine maintenance or downtime. But to bring up a server almost immediately on another machine if one has a hardware failure is a more tractable problem and it is a service we eventually intend to offer. Xen has a feature called remus http://wiki.xen.org/wiki/Remus http://wiki.xen.org/wiki/Remus which effectively does continual live migration which would be pretty cool to implement, though support on Linux is not mainstreamed yet.