More generally, other tools such as a CDN, DNS, email delivery services, Facebook authentication, Twitter feeds, OpenStreetMap. Google APIs, mapping, Analytics, and others, all rely on some third-party infrastructure, if not AWS itself. I'm not saying that all sites rely on all of these, but many use one or more.
The Web is becoming increasing interconnected in ways that increase fragility.
If you strip the labour cost out of the equation, hosting it yourself can be up to an order of magnitude cheaper. Of course stripping the labour cost out is only possible if you can do it yourself :)
In my case, I can (as could maciej of pinboard.in fame).
Edit: also helps if you can find a well priced data centre or two. For me, I'm planning on going with hetzner.de and ovh.net
>> Of course stripping the labour cost out is only possible
>> if you can do it yourself :)
Admittedly, the calculation is made easier by the fact that I'm not building the next Netflix or Heroku, however, neither are 95% of the other start ups out there.
I'm fairly sure that if you have 10 instances at EC2, you're paying FAR more than $550/month.
The other benefit EC2 gives you is quick/instant deployment of even really high-end hardware if you quickly out-pace your current capacity and need another box ASAP, whereas even if you were doing dedicated servers, it still takes a hour or two for them to put your new box in a rack and get back to you with the IP and such.
Seriously though, because the costs are so much cheaper you just over provision the main machines slightly and keep a spare box or two ready to go. If that isn't enough to smooth out the spike then I guess at least you've got a nice problem to have.