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.