But startups need hosts that are up 24/7. ECC doesn't give you any guarantee of uptime, and if it goes down the local (fast) disk is ephemeral. Yet, the EBS alternative which is backed up, is very slow.
The basic VPS offerings, that Linode, Rackspace, and just about everyone else offers, isn't available at all from Amazon (near as I can see.) Yet this is what startups need- local disks, a small monthly fee, and up all the time.
So, Amazon requires extra engineering--to account for nodes going down more often and to make ephemeral disks reliable or EBS performant. It also puts you on the path to lock-in, since so many of amazons services have their own unique APIs. It isn't exactly cheap, near as I can tell, when compared to, say, dedicated hosting in germany.
Its advantages exist elsewhere- if you need to spin up a bunch of machines with an API you can do this at rackspace cloud. And... that's about the only advantage I'm able to think of. Personally, I'm architecting to have some overcapacity built in and to survive a spike, because I use that excess capacity in the off hours for heavy lifting. I wouldn't try to bring up extra nodes in the morning and shut them down in the evening anyway... and I doubt that many startups are really doing that.
Possibly, I'm missing something. I tend to forget about features that aren't compelling to me, but are compelling to others. So maybe there's something that's important to these startups.