Amazon's new Elastic compute cloud looks good. So many signups they've closed the beta for now. Between EC2 for compute and S3 for storage, Amazon is offering most of a utility computing service. Store and process data for very cheap, pay as you go. As a developer who recently lost access to a massive compute farm I find these Amazon services very exciting. Think of the startups it could enable!

But as the founder of a failed utility computing company I just don't get how Amazon's going to benefit from offering these services. The problem is the commodity pricing. If Amazon completely sells a server they gross about $900 a year. Say it costs $300 / year to buy and run a server and they fully sell out 10,000 machines, then Amazon nets $6M / year. Amazon made $360M last year, so this best case scenario would be a 2% earnings improvement. Nice, but worth the distraction to their primary business?

I love that Amazon is offering this service; it seems very valuable and useful to people like me. But unless it's a long term viable business for Amazon it'd be foolish to build a product that relies on their service. I guess we'll see how it plays out. Sun's version of this was looking really bad last year, but then again the signup process at Sun is 1000 times harder.

Thanks to waxy for some chat on this question
  2006-08-29 18:41 Z