Amazon Web Services are readying their latest service called EC2 which will allow users to setup and run servers and computing capacity in the cloud. Users of the service can setup a server instance which is hosted with Amazon, and then access and use the servers they setup just like any other. With EC2 there would no longer be a requirement to source and setup physical hardware and the virtual server instances are charged back to the user based on the CPU, storage and bandwidth usage.

The pricing of EC2 is 10 cents per instance hour (which comes to $72 per month for a server that is always available), 20 cents per GB of bandwidth and 15 cents per GB of storage (storage is with S3). Compared to traditional server providers such as ev1servers this may not be priced low enough (especially the bandwidth cost, considering most hosting providers include 2000GB or more of bandwidth) but it may prove to be a good solution for some users.

The way it works is that you use tools that Amazon provides to create a machine image on your local machine (the tools are all written in Java). You can setup the image with a web server, application environments, mail or anything else, the “images” are just Fedora Core and they come with some pre-installed services (Amazon calls them AMI’s, or Amazon Machine Instances).

To setup your own server instance you then upload this image to Amazon S3, and then once it is uploaded you go to Amazon EC2 and register the image as a server instance. Once registered, you can boot and access the server instance within minutes. Each server instance is the equivalent of a 1.7Ghz Xeon CPU, 1.75GB of RAM, 160GB of local disk, and 250Mb/s of network bandwidth. Currently EC2 will allow you to create up to 20 server instances, to create more you need to contact Amazon.

While each server instance provides decent computing power applications such as large-to-medium scale databases or large web applications will require work to bring the computing power together to serve requests. Since each instance has a fixed amount of capacity they will be prone to performance issues when under heavy load as achieving scalability requires the user to acquire more server instances. One issue is that having separate server instances is not true “elastic” computing, like what Sun or other vendors provide, since the user is responsible for clustering and or load-balancing solutions between the servers.

For users who need smaller scale solutions then EC2 would work well. I would say that it will only be a matter of time before we see some front-end providers pop up and offer “instant on” servers pre-configured for tasks such as web and mail hosting. How billing would be handled by these providers is an unknown, but this could open up the lower-end shared and virtual hosting markets since it can provide the end user everything they need where they pay only what they use for. The biggest advantage this service has is that it is a very quick way to setup a new server online, and you pay for what you use, starting at just the base rate for server time (10c per hour).

No word yet on when this service will be opened up to the general public, it is currently being trialed by a small number of long-time Amazon Web Services customers. Full documentation and forums are available on the site now.