Is it cheap?
> I must be missing something in the mathematics... Storage
> costs $0.15/Gb plus $0.20/Gb in transfer costs. So by my
> reckoning, to copy say 500Gb to them and read it back
> once will cost me $0.55 x 500. Which is approximately
> what a 500Gb SATA II drive will cost.
Hardly the same thing. No data transfer costs for the local hard drive, for starters.
Amazon is cheap relative to the competition. For example ibackup.com sells online backup space from $1.00 per GB (Economy plan). No additional cost for data transfer, but you have to pay whether or not you actually use the space. Amazon is pay-as-you-go.
A cheap hosting provider might get you online space for less, but bear in mind that S3 is scalable, decentralized, authenticated, and fault-tolerant.
Photo site Smugmug moved part of its online storage to S3 and said it was cheaper than the drives in its own data center.
I spoke to a couple of ISPs at a recent conference, who wanted to provide similar services to their customers. They told me that Amazon's pricing is hard for them to match.