Transit costs an ISP (who buys 40+ gigabit circuits) about $1/megabit @ 95th percentile. 1 Terabyte is about 3 megabits/second fully loaded for a month - So, presuming that DO has to pay for their pipe, that 1 TB costs them $3.
Amazon is probably charging a bit much, but DO's costs are probably unsustainable if people actually used their 1TB (much like any service that offers people a "huge amount" with the hope that nobody actually uses it.
Or they plan on overages. They charge '$0.02 per GB thereafter' which works out to 20$ per TB so they break-even on bandwidth at ~1.2TB. Sure, some people can get vary close to 1TB without going over but for most people it's hard to manage bandwidth that exactly.
Transit costs an ISP (who buys 40+ gigabit circuits) about $1/megabit @ 95th percentile. 1 Terabyte is about 3 megabits/second fully loaded for a month - So, presuming that DO has to pay for their pipe, that 1 TB costs them $3.
Except that nobody ever has an average bandwidth utilization equal to their 95th percentile utilization. And Amazon probably has a lower mean-to-95th-percentile ratio than most ISPs, since a lot of their customers are "peaky" to begin with.
I have about 15 droplets on DO right now and none of them are close to using a TB even over a year (but we don't use them for production). I'd bet they are banking on this for most cases.
I checked out Verizon's new cloud beta yesterday, and while they haven't announced pricing maybe they can do a good deal on bandwidth given that they own so much of the network.
Not saying its the best bandwidth but I'm pretty sure you can get $1/Mbps from Cogent on 1Gbps commits (or you could about 2-3 years ago when I was talking to their sales people). I would expect Amazon and DO's costs to be significantly cheaper.
Amazon is probably charging a bit much, but DO's costs are probably unsustainable if people actually used their 1TB (much like any service that offers people a "huge amount" with the hope that nobody actually uses it.