It's standard practice to run all your physical servers as ESX cluster. Doesn't matter if for hosting, internal needs or whatever. Nobody sane would just install Ubuntu on a physical server and edit the nginx config. Running virtualized makes it much easier to have standard backups, restores, upgrades, failovers and so on.

What else would they be running? VMWare abstracts the machine from the hardware in a very literal sense, with live migrations between hosts, etc. so you can work with your boxen without interrupting any customer services.

If that capability suddenly costs 10x-100x more due to licensing, the margins stop being there - you'd need to rise prices above whatever aws/azure/gcp is doing and that's obviously not going to fly with customers. Shutting down is the only reasonable choice; unreasonable choices like develop your own vmware alternative or use an existing open source solution don't make sense for anything above micro and below hyperscale. The mid-market has been rugged, gutted and driven over by a Buick.

It has been incredibly common for the last maybe 15 years in the managed hosting industry. It wasn’t even especially expensive compared to the revenue density. Most would be on service provider licensing paying per GB of RAM.