I don't feel as sure about this; there's very little evidence that Amazon is putting a "50% margin", or any significant percent, on x86 servers. Sure, they're more expensive than, just for comparisons' sake, Linode or DigitalOcean, but EC2 instances are also roughly the same cost per-core and per-gb as Azure compute instances, which is a far more accurate comparison.

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).

[1] https://aws.amazon.com/aws-transfer-family/pricing/

A 32 core EPYC with 256gb will cost you $176/mo at Hetzner, and $2,009/mo on EC2.

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.

Very few of AWS's costs are in the hardware. Nearly all of Hetzner's costs are in the hardware. That's why AWS, and Azure, and GCP are so much more expensive.

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.

Margin calculations include all that. And I suspect most of AWS's marginal cost is _still_ hardware.

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.

> The marginal cost of VPC is basically 0. Otherwise they couldn't sell tiny ec2 instances.

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.

So what you're saying is kind of the opposite of a marginal cost.

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.

>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.

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.

Right, but that's not what I'm saying. Whether or not the added network quality offers a tangible benefit to most customers isn't relevant to how it is priced. You, as the customer, need to make that call.

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.

>You, as the customer, need to make that call.

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.

> Amazon really does not have a history of throwing huge margins on raw compute resources

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.

Yes. Look at the requirements for the EKS control plane for another example. It has to be HA and able to manage a massive cluster, no matter how many worker boxes you plan to use.*

*Unless things have changed in the last year or so since I looked

It is currently 10 cents an hour flat rate for the control plane. That actually saved us money. Even if you weren't going to run in HA, that is still the cost of a smallish machine to run a single master. I am not sure who running K8s in production would consider that too high. If you are running at the scale where $72 a month is expensive or don't want to run HA, you might not want to be running managed Kubernetes. I'd just bootstrap a single node then myself.

You said it yourself: production at scale is the only place where the current pricing makes sense. That's fine, but it means I'm not going to be using Amazon k8s for most of my workloads, both k8s and non-k8s.

If you cut out the Kubernetes hype, you could simple use AWS' own container orchestration solution (ECS) whose control plane is free of charge to use.

> Many people complain about AWS' networking costs, but I also suspect these are generally at-cost.

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.

And I mean, if you just compare the price of Amazon's egress compared to that of a VPS at Hetzner or OVH, to say nothing of the cheaper ones, you can be sure that they are making margins of over 200% on it for EC2. There's a 4$ VPS on OVH with unlimited egress at 100Mbps.

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.

Indeed it is. But rest assured that every provider will shut your server down if it's running at full bandwidth all day.

Sure. But you just need to run your server at full bandwidth for one hour every day to use up 10 times more bandwidth than even lightsail would give you for the price of the server.

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.

No, Hetzner charges you <$2/TB. for that price, they'll be happy to route as much traffic as you want. Never heard that they complain in these cases.

They have worse peering than AWS but the difference in cost to them is certainly not 100x or more.

Obviously the comment is in reply to having unlimited traffic for a flat fee and not for a price per TB.

This doesn’t add up. Amazon is profitable mostly because of AWS which in turn is profitable mostly due to EC2 and S3.

Clearly they have margins, and fat ones at that.

Yes, by many estimates some of the highest in the industry

"When factoring in heavy depreciation, AWS has EBITDA margins of around 50%."

https://seekingalpha.com/news/2453156-amazon-plus-15-percent...

Building managed applications is where the money is at for AWS for sure, Elasticache is another good example. The beauty is their managed services are great and worry free.

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.

Long term, Amazon is also the exact kind of company that would start making "modifications" to Graviton requiring you to purchase/use/license a special compiler to run ;)

Can you point to a time Amazon did something like that? Not saying they won't, just any company can do it, it's more likely when they've done it in the past.

Why would they want to shift people to ARM based instances if they weren't more efficient?

even if it were the case, it is still a saving for the end user and it is a threat to Intel.