How does Amazon decide on pricing for its AWS services?
Is it based on the variable cost of electricity? Or the willingness to pay of specific target segments they're going after? Or something else?
Amazon employs teams of economists. So I’d say the answer is by telling teams of economists they’ve got a new product and want to figure out how to price it. Because it’s not as simple as just “take expected costs and add 30%.” Different products have different margins. There are tons of other factors I’m sure they consider like whether there are any competitors, hype the product has, and how long they expect the product to be popular.
The same way you price any other service: aggregate the costs of your dependencies, forecasting for eventual customer usage over 5 years, and charge for an expected 30% profit margin.
imo it is the amount they can get away with, especially with their first mover advantage back then.
sometimes it costs more to move to another vendor than to just stick with their high prices.