How Amazon's AWS Can Attract Ugly Economics
By Paulo Santos:I have already written on how Zynga (ZNGA) and other large consumers of hosting capacity can use Amazon.com's (AMZN) AWS in a way that subjects Amazon to adverse selection. I will try, in this article, to explain a bit better how this phenomenon works, and how, if Amazon allows it to go on for long, it might destroy AWS' profitability. Basically, in the past Zynga used AWS for its hosting needs, but at some point decided to create its own data centers, relying on AWS only for peaking needs. Below I will show the broad implications of this for Zynga and AWS.
Zynga Using AWS For All Its Hosting Needs
Let's say that Zynga had a theoretical load profile that looked something like the chart below (all the numbers are purely for illustrative purposes):
(Click to enlarge)
What we see here, is that to handle this activity AWS would needComplete Story »