S3 Isn't Getting Cheaper

Clayton Christensen famously demonstrated the Innovator's Dilemma by using data from the hard drive industry in the 1980s. At every point, companies failed to make the switch from 8-inch drives, to 5-inch drives, to 3.5-inch drives. Capacity and speed increased exponentially every year. As a result, many of these companies faced strong downward pricing pressure and slim margins.

But cloud storage is different. AWS S3 is the fundamental cloud storage service. So popular that its API has become a de facto standard that other clouds have adopted. It is massively complex and sits behind a simple (simple storage solution) API. Store files. Retrieve files. Delete files.

Yet, AWS S3 pricing hasn't decreased as fast as the underlying storage costs. This doesn't include the additional fees like egress. Of course, prices vary by storage tier and region, but this seems to be a general trend. It follows that AWS has strong pricing power when it comes to storage, even with API-compatible competitors from Google and Microsoft. S3 seems simple on the surface but is not a commodity. Two months after Cloudflare announced their free egress storage solution, R2, AWS cut prices on certain S3 products.

Another blog post analyzes the same theory for compute and finds a similar story using pricing data from AWS EC2. Even with a slowdown of Moore's Law, it seems like AWS has a healthy margin to continue to offer strategic price cuts only when necessary.