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We are going to outsource a solution from the data-center (for some reason), it is a web solution built on .NET and SQL server and it has scheduled night services. I searched for Cloud Hosting (IaaS) and I found some nice prices and offers and see that dedicated servers are very cheep and the hardware specifications are very good.

The advantage I see in cloud hosting is that it is easier to scale and they provide better availability since it is a virtual machine. But IMHO if I want to compare dedicated servers with cloud servers/hosting, in terms of hardware specs and pricing I see dedicated servers are cheaper.

I would give some pricing examples but I don't want to include specific companys' packages lest it be seen as advertising for them.

What are the cases that make cloud hosting more preferable then dedicated servers? What are the cases that make dedicated servers more preferable then cloud hosting?

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You sort of answered your own questions... the cloud solutions are typically better at scalability and also more reliable (because a hardware outage usually results in your VM being restarted on a new host in seconds rather than waiting hours for a physical hardware repair.)

You also get tons of flexibility for deployment with the cloud as with any virtualization solution... you can typically split an single-server application amongst two smaller servers for the same price in minutes or hours instead of days. OR scale up to a single bigger VM with more RAM and CPU allocation. It's also far easier to clone temporary instances for development, QA, and testing, because you usually only pay for what you use.

On the other hand, with dedicated boxes you get more consistent performance since you're not competing with other VMs for processor, disk, and network resources.

I would say that cost should not be a primary driver for you in this decision... saving $50/month doesn't matter as much as getting the right fit, especially if this is a business.

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