Nothing wrong with buying hardware yourself if you know what you are doing. I help run a dedicated hosting company in India, one of the biggest. Most of the hardware we get in our colocation facility from customers is atleast 2 generation old processors and almost always the wrong form factor and it has typically costed them atleast 2x of what it costs us to buy the same hardware due to our scale of acquisition.

There are advantages of a Hosting company buying hardware for you and amortizing it. It is impossible for a small startup buying < 5-10 servers to achieve say a cost of Rs. 100-200 USD per month per server including amortization ( say 24 months ), bandwidth, power and remote hands per server. And I super agree with the fact that it is easy to run high bill on cloud hosting where you pay through your nose for everything except perhaps the base level machines for the privilege of being able to burst your load to 100x. Only about 2% of the customers on cloud actually require burst capacity beyond 2x. It is easy enough to achieve cost savings of 30% with always-on 2x capacity using standard dedicated servers from a dedicated server focused hosting company than buying capacity on the cloud and using maybe burst capacity 5% of the time.