Currently I/we run a SaaS web application where each subscriber has their own physical instance of the application in addition to their own database. The setup has each web application instance deployed on two different IIS boxes both for load-balancing and redundancy (the machines have their Windows Update install times 12 hours apart, for example). Databases are mirrored on two different SQL Server 2012 machines with AlwaysOn for uptime. I don't make use of SQL Server clustering (as it doesn't provide storage-level failover: we don't have a shared storage box).

Because it's a Windows setup it means there are two Domain Controllers (we cheat: they're both Mac Minis, 17W each, which keeps our colo power costs low).

Finally there's also an Exchange server (Mailbox, Hub Transport and Client Access). One of the SQL Servers also doubles-up as an Exchange Hub Transport.

Running costs are about $700 a month for our quarter-rack colocation (which includes power and peering/transfer), then there's about $150 a month for SPLA licensing, so $850 a month in total. Then there's the hard-to-quantify cost of administration, but I reckon I spend a couple of hours a week checking-in on the servers: reviewing event logs, etc.

I keep getting bombarded by ads and manufactured news stories about how great "the cloud" is.

Back in 2008 when the cloud was taking off I was reading up about the proper "cloud" services like Google AppEngine, where you write in Python against Google's API and that's how they scale your application across servers and also use their database provider for scaling storage. Simple enough to understand.

Then came along Amazon, and I understand how Amazon Storage works, but I'm not sure how Amazon Compute works: web application pages don't take much CPU time to compute, how do you even quantify usage anyway?

Finally, RackSpace gets in the act and now I'm really confused.

RackSpace advertise "Cloud" SQL Server 2012 available for about "$0.70 per hour", going by how they advertise it I thought the "hour" meant the sum of CPU time, IO blocking time, maybe time spent transferring data, so for a low-intensity application that works out pretty cheap then?

Nope. I went on to a Sales Chat window and spoke to one of their advisors. They told me the $0.70/hour was actually for every hour the SQL Server is running... but who wants a SQL Server for only a few hours? You're going to need it available 24 hours a day for months on end. $0.70 * 24 * 31 works out at $520 a month, which is rediculously expensive for SQL Server. An SPLA license for SQL Server is only $50 a month or so. That $520 a month does not include "fanatical support", and you also need to stack on top the costs of the host Windows server instance too.

From what I can tell, Rackspace's "Cloud" products seem like like an cynical rebranding of an overpriced VPS service, but priced by the hour.

I have the same confusion about Windows Azure which uses similar terms to describe the products available, but I think that's because Azure offers both traditional shared webhosting in addition to their own APIs you can target for scalable applications.