From S3 to R2: An economic opportunity

Cloudflare has been attacking the S3 egress problem by creating Sippy: https://developers.cloudflare.com/r2/data-migration/sippy/

It allows you to incrementally migrate off of providers like S3 and onto the egress-free Cloudflare R2. Very clever idea.

He calls R2 an undiscovered gem and IMO this is the gem's undiscovered gem. (Understandable since Sippy is very new and still in beta)

What are the economics that Amazon and other providers have egress fees and R2 doesn't? Is it acting as a loss leader or does this model still make money for CloudFlare?

Amazon doesn't have unit cost for egress. They charge you for the stuff you put through their pipe, while paying their transit providers only for the size of the pipe (or more often, not paying them anything since they just peer directly with them at an exchange point).

Amazon uses $/gb as a price gouging mechanism and also a QoS constraint. Every bit you send through their pipe is basically printing money for them, but they don't want to give you a reserved fraction of the pipe because then other people can't push their bits through that fraction. So they get the most efficient utilization by charging for the stuff you send through it, ripping everybody off equally.

Also, this way it's not cost effective to build a competitor to Amazon (or any bandwidth intensive business like a CDN or VPN) on top of Amazon itself. You fundamentally need to charge more by adding a layer of virtualization, which means "PaaS" companies built on Amazon are never a threat to AWS and actually symbiotically grow the revenue of the ecosystem by passing the price gouging onto their own customers.

Honest question, how is this different than a toll road? An entity creates a road network with a certain size (lanes, capacity/hour, literal traffic) and pays for it by charging individual cars put through the road.