Even when they didn't want to buy own hardware (colocation also costs), they could use some decent dedicated servers. They are usually more reliable, faster and

Even when they didn't want to buy own hardware (colocation also costs), they could use some decent dedicated servers. They are usually more reliable, faster and cheaper than EC2. Also most startups grow slower than the time needed to rent & tune new dedicated machine for increased traffic. I don't believe many people are firing up hundreds of instances one day and kill them another day so it would really justify usage of EC2. I think it's just a habit: people start with EC2 because they think they will need ultra-scalability tomorrow and then there's lock-in - the cost of switching to another infrastructure is just too big. In the meantime the ugliness and performance problems of EBS start to bite them, but it's too late.