Why do people use Heroku when AWS is present? What distinguishes Heroku from AWS?
AWS / Heroku are both free for small hobby projects (to start with).
If you want to start an app right away, without much customization of the architecture, then choose Heroku.
If you want to focus on the architecture and to be able to use different web servers, then choose AWS. AWS is more time-consuming based on what service/product you choose, but can be worth it. AWS also comes with many plugin services and products.
Heroku
- Platform as a Service (PAAS)
- Good documentation
- Has built-in tools and architecture.
- Limited control over architecture while designing the app.
- Deployment is taken care of (automatic via GitHub or manual via git commands or CLI).
- Not time consuming.
AWS
- Infrastructure as a Service (IAAS)
- Versatile - has many products such as EC2, LAMBDA, EMR, etc.
- Can use a Dedicated instance for more control over the architecture, such as choosing the OS, software version, etc. There is more than one backend layer.
- Elastic Beanstalk is a feature similar to Heroku's PAAS.
- Can use the automated deployment, or roll your own.
First things first, AWS and Heroku are different things. AWS offer Infrastructure as a Service (IaaS) whereas Heroku offer a Platform as a Service (PaaS).
What's the difference? Very approximately, IaaS gives you components you need in order to build things on top of it; PaaS gives you an environment where you just push code and some basic configuration and get a running application. IaaS can give you more power and flexibility, at the cost of having to build and maintain more yourself.
To get your code running on AWS and looking a bit like a Heroku deployment, you'll want some EC2 instances - you'll want a load balancer / caching layer installed on them (e.g. Varnish), you'll want instances running something like Passenger and nginx to serve your code, you'll want to deploy and configure a clustered database instance of something like PostgreSQL. You'll want a deployment system with something like Capistrano, and something doing log aggregation.
That's not an insignificant amount of work to set up and maintain. With Heroku, the effort required to get to that sort of stage is maybe a few lines of application code and a git push.
So you're this far, and you want to scale up. Great. You're using Puppet for your EC2 deployment, right? So now you configure your Capistrano files to spin up/down instances as needed; you re-jig your Puppet config so Varnish is aware of web-worker instances and will automatically pool between them. Or you heroku scale web:+5.
Hopefully that gives you an idea of the comparison between the two. Now to address your specific points:
Speed
Currently Heroku only runs on AWS instances in us-east and eu-west. For you, this sounds like what you want anyway. For others, it's potentially more of a consideration.
Security
I've seen a lot of internally-maintained production servers that are way behind on security updates, or just generally poorly put together. With Heroku, you have someone else managing that sort of thing, which is either a blessing or a curse depending on how you look at it!
When you deploy, you're effectively handing your code straight over to Heroku. This may be an issue for you. Their article on Dyno Isolation details their isolation technologies (it seems as though multiple dynos are run on individual EC2 instances). Several colleagues have expressed issues with these technologies and the strength of their isolation; I am alas not in a position of enough knowledge / experience to really comment, but my current Heroku deployments consider that "good enough". It may be an issue for you, I don't know.
Scaling
I touched on how one might implement this in my IaaS vs PaaS comparison above. Approximately, your application has a Procfile, which has lines of the form dyno_type: command_to_run, so for example (cribbed from http://devcenter.heroku.com/articles/process-model):
web: bundle exec rails server
worker: bundle exec rake jobs:work
This, with a:
heroku scale web:2 worker:10
will result in you having 2 web dynos and 10 worker dynos running. Nice, simple, easy. Note that web is a special dyno type, which has access to the outside world, and is behind their nice web traffic multiplexer (probably some sort of Varnish / nginx combination) that will route traffic accordingly. Your workers probably interact with a message queue for similar routing, from which they'll get the location via a URL in the environment.
Cost Efficiency
Lots of people have lots of different opinions about this. Currently it's $0.05/hr for a dyno hour, compared to $0.025/hr for an AWS micro instance or $0.09/hr for an AWS small instance.
Heroku's dyno documentation says you have about 512MB of RAM, so it's probably not too unreasonable to consider a dyno as a bit like an EC2 micro instance. Is it worth double the price? How much do you value your time? The amount of time and effort required to build on top of an IaaS offering to get it to this standard is definitely not cheap. I can't really answer this question for you, but don't underestimate the 'hidden costs' of setup and maintenance.
(A bit of an aside, but if I connect to a dyno from here (heroku run bash), a cursory look shows 4 cores in /proc/cpuinfo and 36GB of RAM - this leads me to believe that I'm on a "High-Memory Double Extra Large Instance". The Heroku dyno documentation says each dyno receives 512MB of RAM, so I'm potentially sharing with up to 71 other dynos. (I don't have enough data about the homogeny of Heroku's AWS instances, so your milage may vary))
How do they fare against their competitors?
This, I'm afraid I can't really help you with. The only competitor I've ever really looked at was Google App Engine - at the time I was looking to deploy Java applications, and the amount of restrictions on usable frameworks and technologies was incredibly off-putting. This is more than "just a Java thing" - the amount of general restrictions and necessary considerations (the FAQ hints at several) seemed less than convenient. In contrast, deploying to Heroku has been a dream.
Conclusion
Please comment if there are gaps / other areas you'd like addressed. I feel I should offer my personal position. I love Heroku for "quick deployments". When I'm starting an application, and I want some cheap hosting (the Heroku free tier is awesome - essentially if you only need one web dyno and 5MB of PostgreSQL, it's free to host an application), Heroku is my go-to position. For "Serious Production Deployment" with several paying customers, with a service-level-agreement, with dedicated time to spend on ops, et cetera, I can't quite bring myself to offload that much control to Heroku, and then either AWS or our own servers have been the hosting platform of choice.
Ultimately, it's about what works best for you. You say you're "a beginner programmer" - it might just be that using Heroku will let you focus on writing Ruby, and not have to spend time getting all the other infrastructure around your code built up. I'd definitely give it a try.
Note, AWS does actually have a PaaS offering, Elastic Beanstalk, that supports Ruby, Node.js, PHP, Python, .NET and Java. I think generally most people, when they see "AWS", jump to things like EC2 and S3 and EBS, which are definitely IaaS offerings