If you’re building an infrastructure company, or any bandwidth intensive product, it makes sense pretty early. For example, it would be impossible to build a competitive CDN or VPN company based on AWS infrastructure. It would also be hard for Zoom to offer a free tier if they were paying per gigabyte for bandwidth, since it would essentially mean every extra second of a meeting cost them money directly.

The fundamental problem is that AWS (or any major cloud) charges you for the amount of “stuff” you put through the pipe ($/gb), but with colocation you can pay a fixed cost for the size of the pipe ($/gbps). This allows you to do your own traffic shaping and absorb bandwidth costs without needing to pass them onto your customers.

This is the dirty, open secret of cloud pricing models. It’s also their moat, which makes it infeasible to do something like “build AWS on AWS.”