Amazon is exactly the kind of company that would take 50% margin on their x86 servers and 0% margin on their Graviton servers in order to engineer a long term shift that's in their favor - the end of x86 server duopoly (or monopoly depending on how the wind is blowing).
Many people complain about AWS' networking costs, but I also suspect these are generally at-cost. A typical AWS region has terabits upon terabits of nano-second scale latency fiber ran between its AZs and out to the wider internet. Networking is an exponential problem; AWS doesn't overcharge for egress, they just simply haven't invested in building a solution that sacrifices quality for cost.
Amazon really does not have a history of throwing huge margins on raw compute resources. What Amazon does is build valuable software and services around those raw resources, then put huge margins on those products. EC2 and S3 are likely very close to 0% margin; but DynamoDB, EFS, Lambda, etc are much higher margin. I've found AWS Transfer for SFTP [1] to be the most egregious and actually exploitative example of this; it effectively puts an SFTP gateway in front of an S3 bucket, and they'll charge you $216/month + egress AND ingress at ~150% the standard egress rate for that benefit (SFTP layers additional egress charges on-top-of the standard AWS transfer rates).
Shameless plug - partly because of the high cost of sftp in AWS, and lack of ftp (understandable), and a bunch of people wanting the same in Azure / GCS, that made us start https://docevent.io which has proved quite popular.
Obviously it's on demand pricing and the hardware isn't quite the same, with Hetzner using individual servers with 1P chips. Amazon also has 10gbps networking.
But still, zero margin? Let's call it a factor of two to bridge the monthly and on demand gap - does it really cost Amazon five times as much to bring you each core of Zen 2 even with all their scale?
I don't think Amazon overcharges for what they provide, but I bet their gross margins even on the vanilla offerings are pretty good, as are those of Google Cloud and Azure.
Margin is a really weird statistic to calculate in the "cloud". Sure, you could just mortgage the cost of the silicon across N months and say "their margin is huge", but realistically AWS has far more complexity: the costs of the datacenter, the cost of being able to spin up one of these 32 core EPYC servers in any one of six availability zones within a region and get 0 cost terabit-scale networking between them, the cost of each of those availability zones not even being one building but being multiple near-located buildings, the cost of your instance storage not even being physically attached to the same hardware as your VM (can you imagine the complexity of this? that they have dedicated EBS machines and dedicated EC2 machines, and yet EBS still exhibits near-SSD like performance?), the cost of VPC and its tremedous capability to model basically any on-prem private network at "no cost" (but, there's always a cost); that's all what you're paying for when you pay for cores. Its the stuff that everyone uses, but its hard to quantify into just saying "jeeze an EPYC chip should be way cheaper than this"
And, again, if all you want is a 32 core EPYC server in your basement, then buy a 32 core EPYC server and put it in your basement. But, my suspicion is not that a 32 core EPYC server on AWS makes zero margin; its that, if the only service AWS ran was EC2, priced how it is today, they'd be making far less profit than when that calculation includes all of their managed services. EC2 is not the critical component of AWS's revenue model.
The marginal cost of VPC is basically 0. Otherwise they couldn't sell tiny ec2 instances. The only cost differences between t3.micro and their giant ec2 instances are (a) hardware and (b) power.
That's not strictly true. They could recoup costs on the more expensive EC2 instances.
I have not idea what the actual split is, but the existence of cheap instances doesn't mean much when Amazon has shown itself willing to be a loss-leader.
If they are recouping their costs, it's a capital expense, and works differently than a marginal cost. AWS's networking was extremely expensive to _build_ but it's not marginally more expensive to _operate_ for each new customer. Servers are relatively cheap to purchase, but as you add customers the cost increases with them.
If they're selling cheap instances are a marginal loss, that would be very surprising and go against everything I know about the costs of building out datacenters and networks.
What? My $2000 Titan V GPU and $10 raspberry pi both payed for themselves vs EC2 inside of a month.
Many of AWS's managed services burn egregious amounts of EC2, either by mandating an excessively large central control instance or by mandating one-instance-per-(small organizational unit). The SFTP example you list is completely typical. I've long assumed AWS had an incentive structure set up to make this happen.
"We're practically selling it at cost, honest!" sounds like sales talk.
*Unless things have changed in the last year or so since I looked
Clearly they have margins, and fat ones at that.
"When factoring in heavy depreciation, AWS has EBITDA margins of around 50%."
https://seekingalpha.com/news/2453156-amazon-plus-15-percent...
I'm skeptical about this claim. Most cloud providers try to justify their exorbitant bandwidth costs by saying it's "premium", but can't provide any objective metrics on why it's better than low cost providers such as hetzner/ovh/scaleway. Moreover, even if it were more "premium", I suspect that most users won't notice the difference between aws's "premium" bandwidth and a low cost provider's cheap bandwidth. I think the real goal of aws's high bandwidth cost is to encourage lock-in. After all, even if azure is cheaper than aws by 10%, if it costs many times that for you to migrate all your over to azure, you'll stick with aws. Similarly, it encourages companies to go all-in into aws, because if all of your cloud is in aws, you don't need to pay bandwidth costs for shuffling data between your servers.
The reality is, their networks are fundamentally and significantly higher quality, which makes them far more expensive. But, maybe most people don't need higher quality networks, and should not be paying the AWS cost.
But the problem is that you can't. You simply can't use aws/azure/gcp with cheap bandwidth. If you want to use them at all, you have to use their "premium" bandwidth service.
This seems to be demonstrably false, given that Amazon Lightsail exists. Along with some compute and storage resources:
$3.50 gets you 1TB egress ($0.0035/GB)
$5 gets you 2TB egress ($0.0025/GB)
Now, its certainly possible that Amazon is taking a loss on this product. Its also possible that they have data showing that these types of users don't use more than a few percent of their allocated egress. But I suspect that they are actually more than capable of turning a profit at those rates.
4$!
That's a theoretical maximum of 1Tb egress each three hours. So for the cost of 3 hours of egress you can buy an entire VPS with a month of egress, for cheaper. It's insane just how much cheaper it really is.
I assure you that you can run these servers for one hour a day and no one will bat an eye. I know people running seedboxes at full speed for 10 hours a day or so without an issue - that's 100 times the bandwidth of even Lightsail for the same price.
They have worse peering than AWS but the difference in cost to them is certainly not 100x or more.