Why is EC2 so cheap?

April 9, 2007

Amazon charges a very reasonable 10 cents/hour for a modest virtual machine. That’s about $876/year to run the machine continuously, which is competitive with other hosting plans (bandwidth is an extra charge). Why is Amazon doing this? This will not be a significant source of revenue. This post speculates that Amazon is trying to recoup some money they spend on unused bandwidth, due to the perverse way large companies are overcharged. Last week at Google NYC, a Google guy explained that the cost of a datacenter is so high that any unused CPUs is a financial loss. Since Amazon must build a datacenter that can easily handle their peak load (Christmas), most of their resources go unused most of the year. Therefore, they can resell those extra resources at a decent price without providing any “service guarantees”. Amazon can easily add more storage and virtual CPUs to their datacenter, thus better utilizing their capital investment and power contracts by reselling it to the public. But it’s too early to tell if this will be a more significant direction for Amazon.


One Response to “Why is EC2 so cheap?”

  1. jon Says:

    just found this blog through reddit.
    commenting here becuase i didn’t want to distract the discussion already going on in the other post. i’ve just gone through 14 pages of you’re blog’s archive and i must say holy shit man , you can write.

    love the way you write (pretty much within my attention span too) and just wanted to say welcome to my daily reading (:

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