Hypothetical: If AWS was available at the time Google was just starting, would it have made sense for them to go with AWS?
AWS is an order of magnitude more expensive than owning your own hardware, and Google was leveraging economies of scale to operate much cheaper than people that owned their own hardware (e.g. fault tolerant software vs. "enterprise grade" hardware)
People didn't realize it at the time, but "search" wasn't Google's only core competency. It was also "warehouse scale computing".
Of course Inktomi under Eric Brewer was another search company that realized that search is a perfect application for clusters of commodity x86 hardware, or networks of workstations (which AFAIK came from academic projects like http://now.cs.berkeley.edu/ )
(Don't outsource core functions: http://www.joelonsoftware.com/articles/fog0000000007.html )
http://www.flickr.com/photos/nationalmuseumofamericanhistory...
In terms of the hardware, I guess it was a few years, whenever Google started building its own servers, building its own data centers, etc.
There are a lot of challenges as you scale, but it's safe to say that it wouldn't have made sense at any point to outsource/use AWS. New ground was being broken.
Even in the collocation facilities google was developing this skill for example by installing their infamous corkboard servers with the drives attached by Velcro.
A lot do have a delusional expectation that building on AWS to handle that expected 10x overnight growth that they dream of justifies it, but that "just" justifies good caching and the ability to spin up frontends on AWS or similar if neeeded. Which ironically makes you likely to spend less on your dedicated hosting, as if your setup is ready to spin up cloud servers when the load goes too high, you can afford to get much closer to the wire before you add more dedicated hardware for your base load.
For most people, renting a dedicated server (there's a huge number of providers that charge month to month, with no commitment) will come out far cheaper for anything they use more than ~8 hours a day on average.
To me, if a startup puts everything on AWS, it's a sign they have poor cost control.
I noticed at silcon mikabout that prity much all the start ups where using aws - I suspect that 90% of them would struggle if they had to set up their own colo.
It strikes me that both AWS and various PaaS providers (especially Heroku) encourage strong separatioin between the application and its storage. Applications are supposed to treat all persistent storage as network-attached, while the VMs or containers running the appliication are ephemeral. I guess you're saying this is untenable for some kinds of application.