Don't forget that static IP is extra. All bandwidth is extra. Memory is at a fixed limit (some VPS will let you burst above your assigned memory). No software like Plesk to help configure the box. Those things can add up.

Edit 1: I mistakenly said that static IP was extra when it's not while in use.

Edit 2: Storage is also extra.

Static IPs only cost money if you're not using them. For most small VPSes utilization is practically nothing. I'm not saying it will replace VPSes, but it's a valid competitor.

Except that you have to pay separately for storage, as you have to use EBS: http://aws.amazon.com/ec2/#instance

A comparable generic VPS might have 10-20 GB of storage, which only adds $1-2 to the monthly cost.

Yeah, the storage doesn't seem like a huge deal, but the bandwidth might be. A $12/mo VPS from prgmr.com gives you 80 gigs/month free transfer, which Amazon would charge you another $12 for.

If you try to construct a standard VPS or dedicated server plan out of EC2, you're always going to find that the bandwidth makes EC2 more expensive -- but that ignores the fact that most people don't even come close to using all their allocated bandwidth. The fact that AWS only charges for actual bandwidth used makes a big difference.

(The same applies with Tarsnap's $0.30/GB storage cost vs. fixed-plan backup pricing -- $10 for 50 GB sounds cheaper, but if people only use 5 GB of that on average, it turns out to be far more expensive.)

Perhaps you don't understand. This is EC2 we're talking about, not prgmr. People run massive production websites on EC2 because it is reliable, predictable, and secure. It provides features that allow you to recover from outages and failures. For instance, being able to periodically snapshot your EBS volume to S3 and recover from a total datacenter failure within a few minutes by reconstituting the volume in a separate datacenter. However, this just scratches the surface on what AWS offers over a traditional VPS provider.

and, a reserved instance only costs about $10/mo.

$0.03 * 24 * 30 = $21/mo?

Reserved instances (assuming you're going to use it for the full year, which of course is the big caveat) also bring the cost down to $0.007 an hour with an up-front investment of $54, so:

(($0.007 * 24 * 30)*12 + 54)/12 = $9.54 a month assuming you use it for the full year.

Edit: Also, as mentioned by _delirium, Linux instances are also $0.02 an hour. I did the Linux calculation but the same one with Windows goes at $0.012 per hour.

The Linux instances are $0.02/hr.

Ah, yes. Thanks.