Amazon's Jeff Bezos: Honey, I just shrunk the server hosting business

Amazon's Jeff Bezos: Honey, I just shrunk the server hosting business

Summary:'s Martin Lamonica has written a two page report on Amazon's utility computing initiatives under the title Amazon: Utility computing broker.

TOPICS: Servers
14's Martin Lamonica has written a two page report on Amazon's utility computing initiatives under the title Amazon: Utility computing broker. As many of you know (because of the disclosures I often print at the bottom of these blog  posts), I'm part owner of an event production outfit called Mass Events Labs. Under that name, my partner Doug Gold and I produce events like Mashup Camp, Mashup University, and Startup Camp. By the way, Mashup University and Mashup Camp 3 will take place at MIT in January. Due to facility limitations, there will only be room for 250 participants.  Please see the Mashup Camp Web site for more details.

The reason I'm bringing this up here is that, for all intents and purposes, Mass Events Labs is a business just like any other business that has IT needs and when, as a business manager, I do the math on Amazon's utility offerings, it's pretty much impossible for me not to consider trying them out.

Given how integral our Web sites are to our events (attendees update the Web site during the event), I decided that we should be careful about taking any risks with our system hosting (Web, email, wikis, blogs, etc.).  I have seen or personally experienced enough problems with hosting companies (particularly the low-end ones) that I felt in my heart that I'd rather be safe than sorry.

Today, at a cost of about $700 per month, Mass Events Labs has two Dell servers dedicated to running various Web sites. The servers themselves have all sorts of fault tolerant technology built into them (redundant power supplies, fans, network interface cards, etc.). But to be extra sure, we have load balancers in front of both servers and we keep the directories and databases between the two in synch so that if one server dies on us, the other can take over. The servers are located in a datacenter that, beyond the local electric utility, has not one but two layers of backup power generation as well as redundant high-bandwidth connections to the Internet. If something goes wrong with a server, it gets a human's attention -- not mine (that's peace of mind) -- immediately. 

But $700 per month is a lot of money for us. Not that we mind spending it for the peace of mind we get (and the dedicated servers, which is important to us for other reasons). But, as a business, it is our largest monthly recurring cost. So, when I first heard Amazon CEO Jeff Bezos talking about Amazon's EC2 elastic computing initiative ("EC2" stands for Elastic Compute Cloud) at MIT's Emerging Technologies conference, I was listening not just as a journalist, but as a business manager too. For 10 cents per hour that you'd be running an "EC2-based server," Amazon offers the equivalent of a 1.7Ghz x86 processor-based system, 1.75GB of RAM, 160GB of local disk, and 250Mb/s of network bandwidth. Word has it that Amazon is using Xen under the hood to offer these virtual servers to EC2 customers.  But more importantly, the 10 cents per hour thing is worth plugging into a spreadsheet for just about any business -- Mass Events Labs included -- that thinks it already has a pretty decent hosting arrangement. So, let's do a little math.

There are 365 days in the year and 24 hours per day which means that there's a total of 8760 hours per year. Assuming that your server has to run all 8760 hours per year, the total cost per EC2 server per year is $876.  A real analysis of EC2 versus other hosting options isn't quite that simple. If you read Amazon's fine print, you'll may end up incurring some storage and bandwidth charges as well (the fees are similarly nominal) and you may have to spend time with someone from Amazon to understand the extent to which EC2 server instances, once the program is out of beta, will be fault tolerant.

EC2 leverages the same infrastructure that has built for itself.  It involves multiple datacenters, network and power redundancy -- all the stuff you'd expect from a commercial grade hosting outfit. Depending on my comfort level with EC2's reliability (I haven't even figured that out yet), we may not even need a failover server as we have now (or, in EC2's case, that would be a failover "x86 instance").  But just assuming we were comparing apples to apples (as best we can) and we assumed that Mass Events Labs (or your business) needs two servers, the total annual cost is $1752. Today, our annual cost for two servers is $8400.

And Mass Events Labs is a small business. What about you bigger ones out there? The ones running 50, 100, or a 1000 servers. Suddenly, if you're currently in the commercial-grade hosting business, things are looking pretty bleak with this new kid on the block. Let's say you have 100 servers that you run around the clock with a commercial grade hoster, the annual savings moves into the hundreds of thousands of dollars. What? You have 1000 or more servers? Now we're talking about saving millions.

One other side note: none of these back of the envelope calculations take into account what happens if you get smart about server utilization and decide to take full advantage of the Amazon APIs that, in a blink of an eye, can turn these x86 instances on and off. With dedicated hosting of the sort that we have, because of our annual contract, we're married to two servers for an entire year. Whether we're using them or not, we're paying. Not so with Amazon's EC2. With EC2, you can use Amazon's APIs to programmatically scale your server horsepower to match the need at any given point. This is where some savings can really start to kick in. Maybe those 10, 100, or 1000 servers don't need to be running 365x24. Maybe, a bunch of them can be in the "off position" more than they're in the on. In which case, you don't pay the .10 per hour for them. Model this into your spreadsheet and watch that number on the bottom line get smaller, and smaller, and smaller.

I'm not saying that EC2 is for everyone. But, compared to the cost of traditional server outsourcing (let alone running your own servers on your premises), how can you not be opening your spreadsheet software right now?

Topic: Servers

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  • And, for those departmental servers, you can get an encrypted connection to

    a server running at Amazon (or elsewhere). In another 5 years, there will not be much of a reason for any business except for the very large ones to have their own server.
  • too good

    Why do the phrases "if it looks too good to be true it usually is"
    and "the first one is always free" come to mind?
  • Also, if you rent from Amazon, you won't get a message like this when you

    get a peak in traffic because ZDNet or someone posts a link to your site in their story:


    Account Suspended
    If you are the account you should have received this - if you have questions kindly open a support ticket via the control panel.

    Best regards,
    Your team
  • potential win

    scaling up, or scaling down: many businesses can go from shared server or cluster to amazon handling any overage, probably - so you can avoid the long term contracts. in any case, the shared clusters are getting more reliable and powerful all the time and not anymore expensive.

    -<b><a href="">coglabs</a></b>
  • Sounds Too Good to Be True

    Fabulous idea but let's see where they are 1 year from now. I can't imagine building a profitable business model of any kind around this price structure.
    • If I had to guess...

      I'm guessing that the key here is that Amazon already has the infrastructure and, like many businesses with their infrastructures, is not running at 100 percent utilization. So, if you can figure out a way to make your surplus available, it's actually found money.


  • Not meant for hosting

    These servers are supposed to be temporary "computation nodes". The local storage is deleted when the machine is turned off, and there is no guarantee of availability of an individual node. So, this is not competing with hosting services yet; not until they get a working filesystem connection to S3 anyway. Ref: (the EC2 FAQ)

    • Exactly

      It is not fit for hosting environment at all. It is good for computing environment. Let us say you have a highly dynamic website which gets changed every minute (a busy forum?) and if for some reason, you got to kill the instance (or reboot?) due to non-responsive nature, then you have lost all your data because your backup to S3 may not be up to date. EC2 will not help in the hosting environment unless they make the data permanent in their instances.
    • Disagree

      First, define hosting? Server hosting is where someone else runs my servers. Could be for Web. Compute. Anything. Using the FAQ you point to, the last question/answer:

      clearly attempts to prove the superiority of EC2 over traditional hosting.

      • Fair enough

        You're right, hosting can mean different things to different people. But, I think that it would be difficult to supply the service that you provide at with EC2. I think the EC2 beta is opening up again soon, prove me wrong! ;-)

  • Mashup Camp

    BTW, the link to Mashup Camp is too long and mispelled. It should read:


  • server hosting for 50$ a month

    Hello, in Europe you can rent a server for 69 ? a month, a virtual server (Virtuozzo, not yet Xen)from 10 ? a month, for example from

    Roland Sassen
  • Xen-based "dedicated" servers in use for a while now....

    My company, UK based Memset ( have been offering Xen-based virtual dedicated servers for some time now, and we recently became the first in the UK to offer Windows ones as well.

    Virtualisation really does seem the way forwards, and as you say it is enabling dedicated server hosts like us to offer really top-notch enterprise-level quality of service at much more reasonable prices.

    Also, few online applications need a whole modern machine to themselves, but it [i]is[/i] nice (or often critical) to give them their own dedicated server; thats where Xen plus the new VT chipsets really come in - we are running Linux and Windows virtual machines along side one another on the same physical box with unmodified kernels and essentially the same level of security/partitioning as if they were on separate bits of hardware, with truly dedicated system resources.

    Kate Craig-Wood