Separate from the play for replacing tape, there's also the ecosystem strategy. When you run large portions of your business using Amazon's services, you tend to generate a lot of data that ends up needing to be purged, else your storage bill goes through the roof. S3's Lifecycle Policy feature is a hint at the direction they want you to go - keep your data, just put it somewhere cheaper.

This could also be the case where they think they're going after tape, but end up filling some other, unforeseen need. S3 itself was originally designed as an internal service for saving and retrieving software configuration files. They thought it would be a wonder if they managed to store more than a few GB of data. Now look at it. They're handling 500k+ requests per second, and you can, at your leisure, upload a 5 TB object, no prob.

But maybe you're right. The thing could fail. Too expensive. After all, 512k ought to be enough for anybody.