Running applications off of Amazon

I read this article today about SimpleDB from Amazon and I noticed this paragraph that gave an example application implementation of the Amazon Web Services Suite.

? Designed for use with other Amazon Web Services
Amazon SimpleDB is designed to integrate easily with other web-scale services such as Amazon EC2 and Amazon S3. For example, developers can run their applications in Amazon EC2 and store their data objects in Amazon S3. Amazon SimpleDB can then be used to query the object metadata from within the application in Amazon EC2 and return pointers to the objects stored in Amazon S3.

That’s putting a lot of power in the hands of Amazon, and I’m not sure if companies are ready to
trust them that much.? Would they have the sameencryption requirements as things that get off-shored, since the data doesn’t live in a specific place, or does the whole option get ignored in order to keep data in house?

It does open the door for some interesting hosted third party applications, but I don’t see it working without eating the storage costs instead of letting the customer pay for the bill directly, otherwise the customer won’t see the value of the application.? I could be wrong though.