Even with the massive margins, cloud computing is far cheaper for most SMEs than hiring an FTE sysadmin and racking machines in a colo.
The problem is that people forget to switch back to the old way when it’s time.
That very much depends on your use case and billing period. Most of my public web applications run in a colo in Atlanta on containers hosted by less than $2k in hardware and cached by Cloudflare. This replaced an AWS/Digitalocean combination that used to bill about $400/mo.
Definitely worth it for me, but there are some workloads that aren’t worth it and I stick with cloud services to handle.
I would estimate that a significant amount of services hosted on AWS are paid for by small businesses with less reliability and uptime requirements than I have.
Edit: And by people with too much money, which was until recently most tech companies.
Now every developer also has to be DevOps, learning docker, kubernetes and CI systems instead of just focusing on development.
Also we all still have ops teams.
If your scale requires it, that's fine, but that would have been the case with or without AWS et al.
And the only viable answer is the ol’ capitalist saw: they charge what buyers are willing to pay.
That never quite satisfies people though.