So in other words you don't like VMs when they are used in situation where VMs should not be used, and you also don't like VMs when they are poorly planned and deployed, such as running redundant services such as IIS on multiple instances.
I wrote that given that the nature of VMs and reselling them, you have no control over what people do with them.
Let's say you're a web host that provides "root servers", those basically end up being VM instances. However, the issue is that there is a lot of waste that ends up being accumulated.
In your situation, if you are reselling root servers, you can't combine multiple sites under the same IIS instance.
If you are in the resale market, it is a given that your customers will be running apps that are, technically duplicated among the various instances running on the host. But this is not, in fact, a waste at all. It is a feature of the service: These customers expect to have control of their entire instance. It is what they are paying for. It is why they choose to rent a VM rather than use an application services provider.
There are plenty of alternatives now. For example, you may choose to deploy on Elastic Beanstalk, rather than EC2. The efficiency of such deployments will be reflected in the price.
