An expensive dedicated server can also be had for $1300 a month.

Scaling vertically can take you a long long way before you actually have to start separating services.

Ok? That's a non sequitur. No one is forcing you to buy a dedicated server for $1300 a month which probably has the same performance as $250 worth of separate boxes. And separating services isn't what we're talking about here. It's adding horizontal processes across machines instead of on one machine.