This must be how BSD/Linux has killed Windows.
The problem with the 'logical conclusion' that you're offering is that it works entirely in a vacuum. It assumes that AWS does not innovate itself, but steams on with a stolid product. Nothing could be further from the truth - barely a week goes by without them announcing a new service or improvements to an existing one. DO is behind the 8-ball-that-is-AWS, but AWS isn't just sitting there on the felt, it's moving too.
Given the culture of innovation that exists at AWS, it's not hard to see how they could adjust themselves if DO actually does become a threat. AWS is not head-in-the-sand Microsoft, and even if it were, the might of all other operating systems combined - including that of the company so successful that it has $100 billion just lying around in cash - still hasn't knocked Windows off the top spot. Hardly the 'downfall of the incumbent' suggested.
And Microsoft is still undisputed king in the realm of enterprise user software. Unix has always shared the server room with MS (actually, MS is the interloper there), but outside the server room, enterprise users live on MS. There is a myriad of cheaper enterprise and/or office software out there, and MS isn't particularly threatened by it.
Things about how DO is much less complex, simpler and as a result cheaper.
And then when you need the big stuff... the stuff for which you need to pay the big bucks... the complexity isn't there and you move to the vendor that does supply it. When DO makes those kinds of offerings, then AWS will see them as a serious competitor, and you will see prices drop sharply. Until then, it keeps on truckin'.