I was an Amazon EC2 Specialist SA in a prior role, so I know a little about this.
If EC2 were like your home server, you might be right. And an EC2 bare metal instance is the closest approximation to that. On bare metal, you've always been free to run your own VMs, and we had some customers who rolled their own nested VM implementations on it.
But EC2 is not like your home server. There are some nontrivial considerations and requirements to offer nested virtualization at cloud scale:
1. Ensuring virtualized networking (VPC) works with nested VMs as well as with the primary VM
Since I don't work for AWS I'm allowed to say that at the scale of millions/billions of microVMs you're better off running them on bare metal instances to avoid the overhead of nested virtualization.
If I remember correctly, Firecracker VMs don’t have the same security guarantees as EC2 instances. I think I remember that AWS doesn’t put multiple accounts lambdas either on the same bare metal server or VM. I can’t remember which
Unfortunately I'm not at liberty to dive deep into those details. I will say that Firecracker can be used on bare metal EC2 instances, whether you're a public customer or AWS itself. :-)
If EC2 were like your home server, you might be right. And an EC2 bare metal instance is the closest approximation to that. On bare metal, you've always been free to run your own VMs, and we had some customers who rolled their own nested VM implementations on it.
But EC2 is not like your home server. There are some nontrivial considerations and requirements to offer nested virtualization at cloud scale:
1. Ensuring virtualized networking (VPC) works with nested VMs as well as with the primary VM
2. Making sure the environment (VMM etc) is sufficiently hardened to meet AWS's incredibly stringent security standards so that nesting doesn't pose unintended threats or weaken EC2's isolation properties. EC2 doesn't use libvirt or an off-the-shelf KVM. See https://youtu.be/cD1mNQ9YbeA?si=hcaZaV2W_hcEIn9L&t=1095 and https://youtu.be/hqqKi3E-oG8?si=liAfollyupYicc_L&t=501
3. Ensuring performance and reliability meets customer standards
4. Building a rock-solid control plane around it all
It's not a trivial matter of flipping a bit.