I totally agree with your comment about the SLA penalty as an incentive to the provider to take reasonable measures to ensure service.
But that's just in general.
When negotiating bespoke SLA penalty clauses, it can be very illuminating for both sides to discuss lost profit + lost confidence + additional costs to the customer and suggest that these be factored in to the penalty clause.
My experience: both the customer and supplier tend to take a deep breath to evaluate whether this deal is a good one for either of them and begin to reassess their level of risk.
In a off-the-shelf service like Amazon, you as a customer are welcome to suggest a change of penalty to your Amazon account manager, and unless you're something like the US government, you will probably be directed to other cloud providers or your own internal IT organisation!
> In a off-the-shelf service like Amazon, you as a customer are welcome to suggest a change of penalty to your Amazon account manager, and unless you're something like the US government, you will probably be directed to other cloud providers or your own internal IT organisation!
What that suggests to me, is that the time has arrived for an external organization, one that sells loss-of-business protection against such failures, needs to become involved. Such an organization, should enough cloud customers subscribe to it, would become an influence upon services like AWS. I'm not sure I 'like' this idea, but the premise that a customer is using the cloud service at the whim of whatever the provider decides is best practice needs to be revisited.
I still don't know why people keep throwing this out there. Yes, if you were effected and it caused you to lose a lot of income because your business could not operate when EC2 was on the fritz then it's your fault, not Amazons. You can't keep blaming Amazon because you didn't build a fault-tolerant application. It's like blaming your electric company because your home is lit by one super huge flood light which burnt out and as a result you couldn't see or get any work done because you kept no backup bulbs in the house.
I think it's more like getting upset with your cable provider when their service goes down leaving you stranded with no internet. Arguably, it's your fault that you don't have any internet, you could have had redundant internet access between cable and DSL and you have no one else to blame for you decision to pay for only one.
Really the only purpose of a SLA penalty is to incentivize the provider to keep the network reliable.