> Amazon doesn't really get a break on the hardware cost because 10,000 servers do not cost less per server than 100 servers (in fact they cost more as the volume goes up if you need them to be identical).
Two problems here:
First off 10,000 servers almost certainly cost less than 100. Least of all because you can buy direct from the OEM rather than through a reseller (who profits), and also because the buyer has more leverage for negotiations (that's a lot of money, and they COULD go elsewhere).
Second problem: The servers don't need to be identical, and in fact Amazon's EC2 instances aren't identical (they just pretend to be). If you spin up several EC2 instances over a few weeks then look at e.g. the CPU info, you'll see that they vary quite a lot but are similar-ish (this has caused people issues when they're using on-demand instances and their software relies on specific CPU features, in particular when those features only exist on current-gen CPUs).
PS - Also 10,000 is not even ballpark how many physical servers Amazon has (try 450,000).
> When it comes to labor cost - if you have enough hardware for at least one full time datacenter tech, you're in the same boat as Amazon.
I highly doubt that. Amazon's scale allows them to develop better automation, detection, and procedures in general which allows the number of staff per server to be very low. For example, a single dedicated tech' might be able to handle 10-30 servers MAYBE, whereas at Amazon that might be just a single rack and effectively each tech might be responsible for hundreds of physical machines (even if automation does the lion's share of the heavy lifting).
> So you're paying Amazon to do the same work you would do otherwise - only you're subject to their rules and procedures and Amazon being a profitable business needs to mark their services up.
I will fully admit that a company like SoftLayer (per the article) can give Amazon's EC2 a run for its money. However as someone who's seen the costs associated with running servers in house (in particular staffing costs) I struggle to buy that you can under-cut Amazon by doing so (at least until you have a LOT of servers, and even then frankly it is less hassle to out-source it anyway).
There are legitimate arguments for why you'd want to do so e.g. privacy, security, legal reasons, unique hardware/OS, etc. However if you're just doing something generic like web-host+database, then out-sourcing it to a dedicated company is more cost effective. In particular when you start looking at the hidden costs of internal hosting (like office space, heating/electricity, security, and so on).