[jimmrf]

Great points, but I would (and have - news.ycombinator.com/item?id=911252) argue that prices are not cheap, at least relative to costs. They are spending to develop some great services over top, but the perception that they are charging anywhere close to their marginal costs is purely successful PR.

Also, subtle point but I would add that any firing would be for moves perceived as customer-hostile. Just looking into the EC2 Reserved Instances and the supposed secondary marketplace I see some less-than-consumer-friendly practices that seem to be just fine so long as nobody takes note.

[exelius]

Like you, I doubt that they are charging anywhere close to marginal costs because that's simply not how you run a successful business (especially a capital investment business like AWS). Price is determined by the market, and Amazon charges a price they think the market will support - no more, no less. If you think you can put a product out there at a lower price than Amazon, you're always free to try. It was a genius customer retention strategy to continuously drop prices without customers even having to ask - it's basically the opposite of what telecom companies do and it makes Amazon's customers love them.

As far as customer-hostility goes, you're right, there are some customer-hostile practices that happen just due to the nature of some of these B2B markets. But they're largely restricted to "expert" markets where you're expected to know a little bit more and prevent yourself from getting ripped off. There is an element of subtlety to this, but the idea is that you shouldn't be trying to leverage your customers' ignorance in exchange for a big pay day. I'm sure there are small instances of individual marketing managers getting away with things that are against the "Amazon code", but by and large those practices stop as soon as the product is big enough to make it on executives' radar.

[jimmrf]

Agreed and especially like your points around expert markets about the executives' radar.

Just a to build a bit on the pricing point: Outside of perfect competition, price is not determined by the market. It is determined by executive or committee or some agent of a company subject to the market, specifically 1) observed and expected competitors' prices and 2) the company's estimate of the demand curve composed of all possible customers & workloads.

[exelius]

Right; I meant only that cost has no bearing on the price set by the company. The two things you mentioned (competitive landscape and demand forecasts) are both ways of measuring the market.

Marginal cost only plays into the equation when the marginal cost of the product is higher than the maximum price/pricing structure the market is willing to bear over the time horizon you're considering. Amazon just has a longer time horizon than most companies.