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What are the drawbacks/limitations when compared to a more traditional managed shared/virtual/dedicated host?

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It is absolutely feasible to host a PHP/MySQL website on AWS (and you shouldn't notice any significant difference in the procedure compared to setting it up on a VPS or even dedicated host). The potential advantage here is that you have control over the operating system - can change it at will, or even customize and deploy your own build of most (linux based) operating systems.

It is more common for small businesses or new businesses to use AWS - it has low capital costs (which potentially equate to lower risk), which makes it easier to enter into a market which would previously have required considerably computing resources 1. Some fairly big sites do (or did) use EC2 (as was evidenced by their service interruptions) - for example, Reddit, Quora, and FourSquare. Of the top 500k sites, over 10k use cloud services, with about 4k of those being on AWS 2.

Drawbacks/Limitations:

  • Cost for everything - since there is nothing prepaid, and no real caps on usage, it is possible to incur a significant charge if a site sees a dramatic increase in popularity (i.e. you are charged for bandwidth used - you don't have an allotted amount like a traditional service)
  • Performance variations - EBS drives are accessed over a network and performance can vary considerably more than drives connected directly to a server.
  • Communication (big company), lack of stateful (external) firewall, and a few more items, mentioned here

As a personal opinion, I quite like AWS (and do run some PHP/MySQL sites on it) - it is great to experiment with, very 'forgiving' (you can mess things up completely, and easily start over - from a backup, or a 'clean slate' - without contacting support or undergoing any hassle), and it has proven reasonably reliable, easy to use, and is continually improving (lowering prices, adding features, etc.)

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Follow up question if you don't mind: I've been reading some documentation and it appears as though you can install a LAMP stack on an EC2 instance and then use that EC2 instance for your MySQL and even for storing all your files. is this true? is this different from using amazon's MySQL RDS and s3? what i'm asking is, it seems like you can use the EC2 instance for your MySQL and file storage instead of using additional amazon services like RDS and S3...is this true? –  Ryan Oct 16 '11 at 1:51
    
Absolutely true - you can do pretty much whatever you want at a software level on EC2 - if you could install it on a dedicated server you will be able to install it on EC2. The only exception lays in software that requires particular (hardware) architectures (e.g. networking, etc) which may not always work. EBS would be the way to go for MySQL and your files (Instance-store is not persistent). RDS incurs an additional cost, and many have noted that the performance is not as good as a self-managed EC2 instance running MySQL. S3 is good for static files, but not for tasks requiring performance. –  cyberx86 Oct 16 '11 at 2:03
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This sort of question seems to come up here frequently. Yes, it's feasible and common to use AWS to host PHP/MySQL websites (and all sorts of other infrastructures, as well). There is minimal difference between EC2 and a VPS host.

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