> I think there's two reasons: one, it makes them gobs of money. Two, it discourages customers from building architectures which integrate non-AWS services, because you have to pay the data transfer tax. This locks everyone in.

Which makes sense, but even their rates for traffic between AWS regions are still exorbitant. $0.10/GB for transfer to the rest of the Internet somewhat discourages integration of non-Amazon services (though you can still easily integrate with any service where most of your bandwidth is inbound to AWS), but their rates for bandwidth between regions are still in the $0.01-0.02/GB range, which discourages replication and cross-region services.

If their inter-region bandwidth pricing was substantially lower, it'd be much easier to build replicated, highly available services atop AWS. As it is, the current pricing encourages keeping everything within a region, which works for some kinds of services but not others.