I've worked at many places where everything was run off single instance (usually windows) VMs. These systems rarely were constrained in performance by scaling

I've worked at many places where everything was run off single instance (usually windows) VMs. These systems rarely were constrained in performance by scaling issues that would have be solved by scaling horizontally, and in many cases the added latency of doing so would have caused more problems than it would have solved. And as you say, having everything on one or two VMs is not just orders of magnitude cheaper hosting, but also comes with benefits of much more easy debugging and performance monitoring. These weren't tiny start-ups either, these were long running services contracted out to clients including the government and other major companies. It doesn't scale infinitely, but I'd wager that the traffic just isn't there to justify these kinds of setups in 99% of cases, and that some of the scaling needed is because all the added latency and service discovery etc is adding overhead that wouldn't be needed without it. I've often found it odd that people who strive for YAGNI at the code level don't apply the same to the system architecture level.