You can either sell one can of soda for $5 profit or you can sell ten for $1 profit.

Or you can sell 1 for $1 profit, and lose $4 dollars over one sell at $5.

Lower prices != more volume guaranteed, you have to find an equilibrium.

Something tells me Amazon understands price elasticity pretty well.

Of course. But I'm sure they have thought of that though before lowering their prices and their intention wasn't losing money.

AWS is a shared service, so as they add more customers, the overhead costs of administering the service continue to drop. Their priority is to keep growth going at a steady clip.

AWS is also a very granular service, so Amazon gets near real-time metrics re: usage, demand, etc for a variety of services. That allows them to analyze changes in usage patterns and correlate price signals to actual consumption of services.

My guess is they adjust their pricing to control growth. Too cheap, and demand will spike, requiring Amazon to grow the environment too quickly. Too expensive, and they'll have trouble making the continuous capital investments that they need to make while still making money!

AWS would be making no money if they cost more than everybody else.

EC2 pricing was so absurd that everyone was using spot pricing for 50-80% off. This adjustment just gets more people back on the standard pricing scheme and makes tracking financial easier for Amazon.