You are not missing anything. I wondered about this myself, then started using physical servers from Hetzner for my SaaS. Quite happy with the results over the last 4 years.
what did the interconnection between the dedicated servers cost?
in the past, there was no vlan support, i.e. you need to buy the interconnection, which was not cheap.
There are VLANs, but I don't use them. I found it's easier to use vpncloud (https://vpncloud.ddswd.de), that way I can use the same setup for development/staging/production, and it doesn't matter if the specific provider used supports VPCs/VLANs.
Also, with vpncloud I know that my data gets encrypted and is private — not necessarily the case with various VLAN setups.
when I started with hetzner there was no vlan, you needed to pay an "extra pack" and an additional network card for interconnection, with more than two servers you also would need to pay for an router and of course the time it did take to setup.
so not really that cheap in the past.
