Amazon's Cheaper Cloud Services—Up to a Point

Amazon.com spent roughly $7.3 billion on capital investments in the last five years—more than 10 times as much last year as in 2008. Much of that money went into its Amazon Web Services division’s server farms, which generate the processing powerAmazon sells to heavy corporate data users on the cheap. The cloud computing division grew so large that the company couldn’t rent out all its spare server capacity. So the e-commerce giant created a supply-and-demand-driven market called Amazon EC2 Spot Instances that allows clients to rent processors for as little as 10 percent of the company’s standard cloud services fees.

To use Spot Instances, companies bid for the rights to a certain number of servers. Winning bidders are billed by the hour, as long as the market price hasn’t risen above an upper bound they specify. The marketplace gives Seattle-based Amazon and its seven-year-old cloud computing division an added advantage over Microsoft and Google, which are racing to catch up after a late start. Macquarie Securities analysts estimated in a Jan. 7 report that total Amazon Web Services revenue will almost double this year to $3.8 billion and reach $8.8 billion by 2015. Macquarie estimates Web Services will kick in close to 5 percent of sales this year, up from 3.4 percent last year, and will rise to nearly 8 percent by 2015.