I have an ex colleague that work projects uses EC2... how do you arrive at 
450-500 per instance excluding data?

With my discussions with him and a few others, it is very hard to estimate 
your actual usage till you get on it. 

For me the potential lies in

   - Ability to exist beyond different regions (the likely hood of all the 
   datacenters going down in all the region is very very small)
   - scalable (you can switch the instance type, and I also believe there is 
   the ability to create/increase capacity via code/conditions)
   - Not needing to worry about hardware
   
So for my understand so far, for you to get maximum benefit from EC2 is to 
architect the app/site  whereby it can exists between different "regions" , 
know how to interface with EC2 to scale when needed... not needing to worry 
about hardware is common with any hosting provider, cloud or non cloud.

Besides the fact that it is cheaper, due to scale of economics.

Just my uneducated 2 cents :)

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