Technically you do have to pre-allocate, but it works like pay-on-demand because:
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We can increase the size of your filesystem at any time, with no downtime involved - so there is no need to overbuy in anticipation of future usage.
Further, you are granted a +10% grace at all times, so you always have some room to grow.
Finally, the system automatically emails you as you get close to your limit, so there is never an unexpected filling of space.
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Given it's all personal data that I can stand to be without for days if needed, I could probably use Glacier (or even Glacier Deep Archive) and pay less than a third of the cost (or less than a twelfth!), but the absolute dollar amount isn't high enough for me to go through the trouble of changing up my backup scripts.
Sure, if you're running a business and are constantly generating lots of new data that needs to be backed up, that gets more expensive, but I also would expect a business with that much data could easily afford to spend several orders of magnitude more than I do on backups.
So far I'm happy with it, pricing is $5/month per 250gb + 1To egress. And, most importantly, none of the AWS complexity overhead. I have enough of that at work.
My guess the bulk of that price difference is due to economies of scale.