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I don't think Reddit is doing it now (since they said their boot process is not automated) but there's a lot to be said for spinning servers up and down according to demand. I'd be curious what Reddit's utilization graph looks like. There may be times when, give smart load monitoring algorithms, they could run at 2/3 the number of servers, or even fewer.

Even without that, keep in mind dedicated servers have investments in hardware management. That's a huge cost. Plus, when you're a fast-paced company, the ability to move quickly is invaluable, which EC2 definitely does allow, but dedicated does not.

Even without that, managed dedicated servers are still often more expensive. Rackspace costs $420/mo[1] for their cheapest dedicated, which is roughly equivalent to 2 small EC2 instances (~$140/mo). The Planet has a similar(ish) machine for $184/mo[2].

[1] - http://www.rackspace.com/managed_hosting/configurations.php [2] - http://www.theplanet.com/dedicated-hosting.aspx

Rackspace's dedicated hosting is not a great comparison, they're definitely at the high end of pricing.

That said, don't forget that both the Rackspace and The Planet boxes come with 2 terabytes of transfer which would be $300 from Amazon. When you factor that in, suddenly Rackspace becomes competitive and The Planet vastly cheaper.

Softlayer will sell you a quadcore box with 8GB of ram and 4 terabytes of transfer a month for $200.

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