How Amazon's EC2 Service Was Born (opens in new tab)

The price levels of everything except for running an instance for an hour have dropped significantly since launch. This includes bandwidth (the pricing tiers used to be $0.18/$0.16/$0.13 per GB and have since fallen to $0.17/$0.13/$0.11 with the addition of a fourth tier at $0.10/GB), S3 storage & requests (used to be $0.15/GB for storage and $0.20/GB for requests, now is $0.12 - $0.15 for storage and $0.10 - $0.17 for requests), Simple Queue Service (the changes here are more complex but Amazon writes "Under the new plan, 76% of customers with bills greater than $1 would have received lower bills, saving an average of 71% each compared to their actual bill", so it's generally much cheaper), Simple DB storage (used to be $1.50 per GB-month, now is only $0.25 per GB-month), even the Cloudfront CDN has already gotten cheaper since its very recent launch date (the lowest priced tier used to be $0.09 per GB and they've since added tiers from 5 to 8 cents per GB).

So while you're right that the instance-hour cost has remained flat since the launch, the actual costs of using the AWS platform as a supercomputer or server farm has fallen dramatically.

They have also added:

- Elastic Block Storage

- An SLA

- Windows

- Static (Elastic) IPs

- New datacenters

- Geographic targeting (Regions)

without raising the price.

Well, putting aside the fact that you are pretty much wrong (servers are cheap, power, cooling, etc, not so much), keep in mind too that their initial pricing may not have been profitable, or may even have been at a loss because what matters is the total lifetime value of a customer.

Amazon (or any other hosting provider) may set their initial price below cost because declining costs will give them a reasonable margin when figured over the space of a few years.

Even mathematically inclined people get brainbusted when someone says the I-word, but I have to try: if you are able to buy some commodity for $1 in 2005, and you are able to buy the same commodity for $1 in 2008, then the real price has declined by about eight to ten percent, give or take.

If they can keep customers at their current price level, then this just sounds like good economics to me.

One of my friends who works there said their largest cost is salary.

Can you explain how salary is subject to Moore's law?

Has the size of a 'compute unit' changed?

Their largest expense could be bandwidth.

All of those are true. The lack of powerpoint at Amazon is not a myth - docs are the order of the day. This is more good than bad, but has some of both.

After a project succeeds in a large company, people who were tangentially involved come out of the woodwork to claim credit. There is a natural human urge to debunk these claims, but often this just makes things worse if the credit-takers are politically astute.