On a balance sheet, you are trading CapEx for OpEx. That's it. For certain organizations with specific types of computing loads, that may make the most sense.
(btw -- I disagree with your math there on the actual cost -- I agree it could ultimately be cheaper to run things in house, there's no way it's going to go from $3.5 million to $20k annually. It'd be more like $3.5 million to $2 million annually. At that point, it's a question of whether or not you want the opportunity cost of having your tech staff engaged in deploying/operating/maintaining server infrastructure as opposed to building new features/etc)
(btw -- I disagree with your math there on the actual cost -- I agree it could ultimately be cheaper to run things in house, there's no way it's going to go from $3.5 million to $20k annually. It'd be more like $3.5 million to $2 million annually. At that point, it's a question of whether or not you want the opportunity cost of having your tech staff engaged in deploying/operating/maintaining server infrastructure as opposed to building new features/etc)