TechEmpower recently ran an interesting study comparing speeds of different web frameworks over here
I'm going to ignore the framework comparisons. They've been discussed at length on the Web elsewhere. I want to draw your attention to the numbers of the highest performing libraries, on both an Amazon EC2 instance and a dedicated server.
Amazon EC2 VM: 37,717 Dedicated server: 213,322
Amazon EC2 VM: 8,838 Dedicated Server: 96,542
Holy cheap hardware, Batman! I was aware virtualization came with performance penalties but by my beer-mat-calculations, the dedicated server handled over 5 times as many requests in the first test and over 10 times as many in the second!
This is completely unscientific and very finger-in-the air, so further tests are in order. As a software developer I use virtual machines all the time. They are cheap and convenient, however it appears they may not be ideally suited for heavy production servers.
Next time I'm working on releasing a project, I'll be sure to check the expected traffic volume. It might be that the cost of running 10 Amazon EC2 instances is higher than a single dedicated server.
In summary, running your web application on dedicated hardware can handle between 5 and 10 times the number of concurrent users as a VM.