Now, if your competitor is on an open stack and on real computers they will eventually run rings around you because they get more control and lower costs.
Obviously it depends on what you're actually doing, but for a straightforward SaaS app (a few servers, a db server, a queue and a load balancer in a few datacentres around the world) one good sysadmin/devops guy costs far more than a set of AWS instances that essentially scale themselves.
Having dedicated people necessary for that 'control' is beyond the budget of the majority of startups.
Exactly plus at scale AWS doesn't do everything either, a sysadmin or at least consultants are still needed to navigate the gotchas and help with how to better provision the stack. AWS instances don't just scale themselves.
There is one specific case when I recommend AWS instead of dedicated servers and it's for customers who have widely varying traffic with predictable peaks. In that case having the flexibility afforded by cloud providers to increase the number of instances temporarily to deal with the peak makes sense.
The only good use-case I know for AWS and it's ilk is if you need a 10,000 node cluster for a few hours to do some heavily compute intensive work which does not require a very large amount of data to be imported and exported afterwards. This is a pretty limited number of use cases but for those situations it absolutely rocks. Anything else I'd run the numbers very carefully.
I don't think that is correct. There are thousands of startups on AWS (an IAAS cloud) that don't run 10K node clusters. While they cost may be high, it is pay as you go. I have a rack full of computers at home and I still have some things served by AWS. The PAAS model (e.g. Heroku, Bluemix) is becoming popular today but those are often hosted in IAAS clouds.
Obviously it depends on what you're actually doing, but for a straightforward SaaS app (a few servers, a db server, a queue and a load balancer in a few datacentres around the world) one good sysadmin/devops guy costs far more than a set of AWS instances that essentially scale themselves.
Having dedicated people necessary for that 'control' is beyond the budget of the majority of startups.