I'm just guessing, but I'm not actually sure that Amazon is that worried about pricing against dedicated hosting. I think they provide a lot of added value on top of just ram, bandwidth and processor. Not everyone needs or wants it, but I don't think you should discount it.
> I think they provide a lot of added value on top of just ram, bandwidth and processor
Bingo. This is why we use them. EC2's performance is not great, and the pricing is only "good" if you reserve instances on a 3-year term. However, their full suite of services are wonderful. We're not really vendor locked in, either, because of how we designed our app.
We're willing to pay a premium in order to not have to administer parts of our stack. For example, Simple Email Service is so cheap and beats the heck out of running a mail server. We have 0 media servers, because S3/CloudFront do it wonderfully. We don't need a front-facing proxy EC2 instance, because ELB works great for our purposes. Background tasks are scheduled with SQS, so we don't need RabbitMQ or ZeroMQ. Auto-scaling shapes our server fleet automagically to our traffic.
Point of all of this is, you spend a ton more on salaries. We've been able to put off hiring because of Amazon's full suite of offerings, which is a huge win for us.
Eh, I run a one man shop, deliver on the order of 100k emails a day, and do most of what you describe on dedicated boxes (redis, queued jobs, mail server), and it doesn't take that much time to administer. My 4 servers have a combined 36 3 ghz xeon processor cores, 12 TB of bandwidth, ~80 GB of RAM, and 8 SSD drives totaling 800 GB of flash. They serve about 11 million requests per day from 100k unique users at an average of 30-40 ms per request. They do this for less than $3k/month, and I've got about 4x headroom from midday steady state. It's not as redundant as Amazon's setup, but I've also had less downtime than EC2 in the last two years. IO is consistent, and almost always below 10ms. Setup and teardown is a pain, but I almost never have to do it. I've been able to put off hiring because it's not really that hard due to how powerful servers are these days. I'll admit to using S3 for picture hosting, but that's the only one :-)
I agree on the added value. Their offerings are incredible. I've used their Cloudfront at various times for example. If they get their prices down further, I'd love to make use of a lot more of their services.
