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There is still a demand for dedicated servers, although it is becoming more and more niche, I think.

Companies with actually performance constrained software without a doubt. There are not so few of them.

There is a big pit in between own DC, and a lot of VM's in terms of economic scalability.

Own DC pays pack when you have 500+ to 1000+ machines in a single location.

Isn't 500 servers still colocation range? That's only 30-40 racks, hardly a whole DC? Or are scale effects that low that DCs of that size make sense?

Depends on colo costs. In quite few places, a budget dc (no uninterrupted power, hvac, and less flexible switching setup) makes sense

Basically resellers and enterprises