Who in their right mind would buy hardware today if their apps are so easily hosted? Why have the headache of data center cooling, data center security, data center facility maintenance, data center redundancy, data center capacity and everything else that goes along with it? The cost of the servers have really little to do with the overall cost. Electricity, support, maintenance & everything else add up.
With azure and services like azure i can scale in many ways much more easily too. I can scale up load balancers, i can scale out mirroring and regional file access (content delivery) and i can do everything through an API so i can spinup/shutdown services dynamically..
If you're the owner of a line of business app that you can host on azure, isn't a 110 bucks a month a bit easier to budget than say trying to get capital approval on a server, server support, server installation, provisioning and bandwidth and capacity/power/cooling research done? Also, if you want to scale up on demand where only 10 days a year you need a second server, that is easily done without having to deploy your own infrastructure.
If you have your own local virtualized infrastructure and services, i'm sure your local costs are still probably as high or higher than the costs outsourced to azure, amazon, google, ibm or whomever you choose simply because they have economies of scale most could never dream to achieve internally without spending hundreds of millions to mimmic..