AWS Innovation at Scale – James Hamilton [video]
youtube.comIn summary, AWS rides the benefits of economies of scale. (http://en.wikipedia.org/wiki/Economies_of_scale)
They design/build their networking gear, full hw/sw stack. This is cheaper and more reliable (their code is simple/customized to their datacenter use case.)
They also have SingleRoot I/O virtualization at each server: each guest VM gets its own hardware virtualized link, which is great for reducing the giant tail at scale problem (google for Jeff Dean's description of the problem.)
Their relational DB system RDS is getting popular: 40% of customers using them. So they compete with Oracle by offering similar highly-available service with much less price. They keep adding new relational DBs: Aurora, RedShift, EBS.
They design/build their power infrastructure. Faster.
They are very customer oriented, they make things simple/painless for customer use cases. They are obsessed with metrics, measuring everything, with tight feedback loops to improve things weekly. They rolled 449 new services + major features in 2014 alone.
Actually, all of what you just mentioned is considered "economies of scope" (http://en.wikipedia.org/wiki/Economies_of_scope)
Here, economies of scope make product diversification efficient if they are based on the common and recurrent use of proprietary know-how or on an indivisible physical asset.
These guys are the new x86. On that note I was surprised they actually get custom chips from Intel, but I guess it makes sense. At the AWS summit in SF earlier this year the only AWS supplier with a booth was Intel.