I think in a nutshell you're describing Clayton Christensen process of disruptive innovation (or more specifically low end disruption). AWS is catering more and more to its most demanding users. This exposes them at the lower end to developers who aren't as demanding but prefer something simpler that better fits their needs. The way this narrative ends is that DO eats up AWS from below
I think you mean "DO gobbles up the fruit that fell from the AWS tree". Why on earth would AWS be particularly concerned that DO gets all the people who want to spend $5/server and have a handful of servers, when AWS get all the people with four-figure-plus spends? One $1000 spender is worth 20 people who rave over $5 boxes. And there are plenty of $1k spenders.
AWS does have some cheap offerings - some micro instances for your first year are free, which is less than "$5/month, good for tinkering", but for the most part they're not interested in folks who have only a couple bottom-end boxes, because that market doesn't have a lot of money in it.
The logic you present is correct from the incumbent's perspective. But followed to its logical conclusion, it leads to the downfall of the incumbent according to Christensen's model of disruptive innovation. The incumbents will continually cater upmarket to their higher value customers while the challenger picks up more and more low value customers. But there's only so far upmarket you can go until you run out of customers and that's when the low end challenger has completely consumed the incumbent.
I think much of this thread is a testament to the lower value customers being ignored. Things about how DO is much less complex, simpler and as a result cheaper.
The problem with the 'logical conclusion' that you're offering is that it works entirely in a vacuum. It assumes that AWS does not innovate itself, but steams on with a stolid product. Nothing could be further from the truth - barely a week goes by without them announcing a new service or improvements to an existing one. DO is behind the 8-ball-that-is-AWS, but AWS isn't just sitting there on the felt, it's moving too.
Given the culture of innovation that exists at AWS, it's not hard to see how they could adjust themselves if DO actually does become a threat. AWS is not head-in-the-sand Microsoft, and even if it were, the might of all other operating systems combined - including that of the company so successful that it has $100 billion just lying around in cash - still hasn't knocked Windows off the top spot. Hardly the 'downfall of the incumbent' suggested.
And Microsoft is still undisputed king in the realm of enterprise user software. Unix has always shared the server room with MS (actually, MS is the interloper there), but outside the server room, enterprise users live on MS. There is a myriad of cheaper enterprise and/or office software out there, and MS isn't particularly threatened by it.
Things about how DO is much less complex, simpler and as a result cheaper.
And then when you need the big stuff... the stuff for which you need to pay the big bucks... the complexity isn't there and you move to the vendor that does supply it. When DO makes those kinds of offerings, then AWS will see them as a serious competitor, and you will see prices drop sharply. Until then, it keeps on truckin'.
Not sure I buy this premise. For one thing, I just had to decide between DO and AWS. I wanted something I could jump in and try something, and then later scale out. I was heavily leaning towards DO. But then I noticed AWS gives you a free year of their micro instance. DO isn't beating that.
Has that ever happened in the tech industry? It seems, following that logic, that Dell should have beat Apple long ago and be the dominate player in hardware as they have historically catered to the lowest value customers.
Well, the history of computing is the bottom end cannibalizing the top end over time. Amazon's entire model is based on using many small, relatively cheap commodity servers to replace larger, more expensive computers. They are susceptible to a point to what's happening at the lower end.
IMO you are underestimating that AWS expands all the time in _every_ direction.
When they added cloudfront, RDS or elastic beanstalk they were offering "something less flexible but very simple" even while they were adding glacier or MFA through IAM which are for more "complex" customers.
> IMO you are underestimating that AWS expands all the time in _every_ direction.
I think I can see where you're coming from but I strongly disagree that AWS will protect its market share by adding more products.
Each new product doesn't just bring utility in terms of what customers can do - it also brings disutility in other areas. New products dilute marketing (what are you selling?). It dilutes the allocation of internal resources (maintenance, R&D, marketing). It increases cognitive overhead for customers (E.g. the product range is a mess -EC2/S3/SWF/SQS/SES/SNS/FPS How is a customer to keep track of what's going on?).
My assertion is that for the average customer - new AWS products only bring headache and zero benefit. Because most people just won't find the need for it. Also AWS don't need to care. They will not meaningfully improve the core offering to the average user because it's the high end customers that will move the needle at the end of the day.
