It's not actually that costly to own a colocated server. A decent server will cost you around $2000 which will include 8 cores & 24gigs of memory. You can colocate it for around $60 a month, which is about $227 per month for 12 months, but is approximately equivalent to 12 small amazon instances.

Colocation is still useful in startups if you want to create/delete instances all the time in a development type environment where you're testing out the infrastructure that integrates between VMs.