It's pretty simple arithmetic. Normal hosting means the customer has to get massively oversized hwardware to be able to handle traffic spikes, and then it sits

It's pretty simple arithmetic. Normal hosting means the customer has to get massively oversized hwardware to be able to handle traffic spikes, and then it sits around doing nothing 90% of the time. For the hoster the cost of supporting idle or fully loaded hardware is nearly the same, but the customer only gets 10% of the utility and isn't willing to pay the full price for that. Let's say the hardware costs the hoster $50/month to buy, run and support, and yields $1000/month of utility to the customer when running at full speed. Running at 10% load, it yields only $100 of utility, so the hoster can ask for perhaps $60/month in fees. With cloud computing, the picture looks quite different: The same $50/month hardware can now support 10 customers, and even if fees are cut by two thirds to $20 per customer, the hoster now earns $200 revenue on the same hardware, his profit margin shooting up from 20% to 300% Of course, these numbers are completely made up and in reality cloud computing incurs some overhead and also requires some amount of idle reserves, but the basic idea holds: monetizing the potential of idle hardware yields huge efficiency gains, most of which the provider can keep for himself.