Take Zencoder for example (which is one of my favourite players in this field)... if you are to compare the prices with say Zencoder  AWS is much more cost effective (by several factors). Even if you were operating at scale and spending $2000 per month with Zencoder, you would only get 50,000minutes worth of HD Video. (You pay 2 minutes worth of credits for HD video on Zencoder).
If you spend $2000 with AWS, you would be getting 33% more value. (Remember, this is operating at scale. The savings can be even larger)... and this is really the best case scenario for Zencoder.
If you are "just getting started", the savings are immediate. On Zencoder it's $0.10 for HD video, compared to $0.03 on AWS.
I'd be really worried and slightly confused by Amazon took this step? There are several video encoding companies that operate on AWS already, and they all just got sandbagged.
 : http://zencoder.com/en/pricing
If I had to guess, this is all part of a strategy to figure out ways to utilize their idle fleet. Spot instances are often used for these sorts of batch offline compute-intensive jobs, but if you're a third party you are hostage to the market dynamics (changing prices of spot instances). Since Amazon owns the market, they can just take capacity out of the fleet of available as spot instances instantaneously for free and be immune to pricing changes in the spot-instance market - something no competitor could ever do.
So if you were to ask - what is a common batch-style workload that requires a lot of computing power that a lot of people need who would otherwise not be using our spot instances and that can consume our idle capacity? I can't think of a better market than video encoding.
This is certainly scary for companies like Zencoder, and feels somewhat anticompetitive (IANAL so speaking practically rather than legally), but it makes otherwise good sense as a business strategy.
Zencoder's pricing has been high to say the least. For example, for a Medium High-CPU instance (about 2x 2.5GHz processors) I should be able to encode video faster than real time (encoding a minute of video should take under a minute). At $0.165/hour, that's $0.003/minute. Zencoder is charging 10x that amount for many people (Zencoder charges 2-5 cents per minute depending on whether you commit to a large package of minutes or not). Plus, Zencoder can possibly combine spot instances and reserved instances to get better. Now, that's not to say I haven't been a happy Zencoder customer - for the volume of video that my company does, it wouldn't pay for us to run a server ourselves. Zencoder is immensely cheaper than rolling our own solution. However, it seems like it's also a place where another company could come in and disrupt Zencoder a bit. Even if you weren't Amazon, if you built up enough of a customer base, you could likely have undercut Zencoder's rates.
I think one thing to note is that companies don't offer the lowest price they can. In fact, in an oligopolistic market like this, economics suggests that the price (if services were undifferentiated) would drop to the Nash equilibrium. Looking at Amazon's pricing, it seems clear that they want to provide a good value proposition compared to Zencoder, but they're still charging nearly $1/hr which certainly allows competitors to match that price on EC2 hardware and shows that Amazon isn't offering the bottom of the barrel price.
It's never fun to compete with your infrastructure provider (or any well-run company like Amazon even if you aren't relying on them). However, we see these things happen and companies on both sides survive.
Amazon might very well have a price advantage, but other parties that can offer better quality of service or better L10n or whatever will still attract customers. This is how markets are "supposed" to work.
>As long as Zencoder runs on AWS, barring some magic encoding technology, it can never be cheaper than Amazon could theoretically go.
1. Our larger customers don't pay more than this already.
2. Paying 33% less doesn't necessarily mean getting 33% more value.
We'll be writing up an analysis today. Off the record (ahem), we've known about this for a long time, and we aren't worried.
At our level, switching to AWS would reduce our per minute cost from $0.08 (HD costing 2x normal minutes) to $0.03 (62.5% cheaper). So our $120 bill would go down to $45.
As a small startup, every $1 makes a difference and the price discrepancy will only increase as our usage increases.
I'm curious if you're concerned about erosion of your low-volume customer base eventually leading lost revenue from future high-volume customers.
But in all seriousness I look forward to the post.
So are you working on designing them out? Or are you counting on them never giving your AWS account short shrift?
The only reason they're the leading computing platform is trust. Trust is the biggest factor in a platform decision, and they'd be foolish to put all their other business at risk for a temporary advantage in one small slice. Especially since they are still making money on every Zencoder job.
Is there a lot of that left since they knocked Netflix offline on Christmas eve?
Really? One example: When states threatened sales tax (before CA), they cut off retailers in those states.
They can and they have given people short shrift when it's in their business interest. To be fair, that just means they know how to increase sales by selecting who gets thrown to the lions, which is necessary in any business.
I think most people making platform selections are mainly focused on AWS. I'm sure they pay some attention now to Amazon proper, but their affiliate programs were a peripheral thing, and
What is also means is that if your company provides a service to other developers you might well be in competition with Amazon in the future.
EDIT: Maybe I should mention that I work at PandaStream, another video transcoding service. We're still cheaper with 100% utilisation but our pricing model and target market isn't exactly the same.
Yes. But I don't recall reading anywhere that Amazon would or even could offer this. It makes me wonder what else there is they will sell. Warehousing software? Shipping logistics? Anyone have a list?
You ship them a pallet of stuff, and then use a web API to ask items to be delivered to addresses.
Amazon has offered streaming video for years now. This is just a guess on my part, but they probably don't receive video from studios in a stream-friendly format. Their streaming format has also likely been updated over the years.
Yep, they put a potential competitor into their critical path. The business lesson is: Don't do that.
Nothin personal, jus business.
I think the general lesson here is that if it is a server-based operation that can be made more cost effective in bulk, Amazon are interested in doing it.
I assume the Heroku guys have noticed by now. Hopefully they're working on designing Amazon out.
I really want someone to make an RDS-like service for Postgres. But I don't blame people for not trying right now, I'm sure Amazon will do it eventually.
I can't quite believe Amazon has never acquired anyone, though- are there any high profile ones out there?
No one builds services like amazon. They aren't interested in bolting on someone else's idea company.
Anyone who has used their instant streaming service. They have a boatload of video to transcode to zillions of devices. The fact that they would take that in-house was not a particularly big leap.
This happens. Look at the operating systems companies. Apple introduced iTunes or Time Machine, and the sales of third-party music players and backup systems goes down. Microsoft includes a web-browser and the sales of third-party browsers goes down, or to go back 20 years, MS introduces DoubleSpace and sales of Stacker go down.
It can be a balancing act. If Amazon starts picking off the businesses of its most profitable cloud customers then there will be an uproar. If Amazon sticks with the features which make it a better cloud provider, then it's more to be expected. This fits into the latter. Hopefully the video encoding companies that operate on AWS already have considered this possibility.
I'm not so sure I'd be worried. Amazon has certain advantages in the market. But they are not into handholding at all. I think you can easily out-compete them on ease of use, support, and community. You can also do much better marketing, and make much more interesting partnerships.
I also think Amazon's massive scale constrains them some; they can't be as flexible. In Zencoder's shoes, I'd be looking to see if I could get a pricing advantage through specialized hardware that covers my base computing load. I've see people drop their AWS bills by a factor of 10 when a good sysadmin designs a workload-specific setup.