The impact of cloud cost optimization is hitting Amazon Web Services.

On Thursday, the world’s largest public cloud computing provider reported revenue growth of 16%, which, while slightly more than analysts expected, still lagged previous quarters. In the fourth quarter of 2022, as a comparison, AWS revenue saw sales gains of 20%. The first-quarter 2023 figure – $21.35 billion – dipped, and also fell below the same period’s cloud sales numbers over at Microsoft, AWS’ biggest rival.

Earlier this week, Microsoft’s Intelligent Cloud group – which houses Azure – showed 27% revenue growth for a total of nearly $22.1 billion. However, because Microsoft does not share Azure data, specifically, it’s hard to say how much of those gains came from the division. Meantime, Google Cloud remains in third place. It reported $7.4 billion in revenue this week but the percentage increase – 27.5% – soared past both Azure and AWS.

Meantime, Amazon executives on April 27 said the seeming slowdown at AWS ties to cloud cost optimization rather than to any direct spending cuts. And the company insisted that, instead of focusing on short-term results, leaders remain intent on long-term outcomes.

Amazon’s Brian Olsavsky

“We’re not trying to optimize for any one quarter or year. We’re working to build customer relationships and a business that will outlast all of us,” Brian Olsavsky, chief financial officer at Amazon, told analysts on a conference call.

AWS sales and support teams “continue to spend much of their time helping customers optimize their AWS spend so that they can better weather this uncertain economy,” he added.

Channel partners, too, are pitching in to help customers reallocate and conserve cloud resources as macroeconomic challenges pressure organizations to better adhere to their IT budgets. These cloud cost optimization efforts benefit users, even as they incur less revenue for the hyperscalers.

Enterprises Are ‘Cautious’

Andy Jassy, CEO of Amazon and former head of AWS, agreed.

Amazon’s Andy Jassy

“What we’re seeing is enterprises continuing to be cautious in their spending in this uncertain time,” he said. “Customers are looking for ways to save money however they can right now. They tell us that most of it is cost optimizing versus cost cutting, which is an interesting distinction because they say they’re cost optimizing to reallocate those resources on new customer experiences.”

To be clear, Jassy emphasized, cloud cost optimization does not equate to a spending slowdown at AWS.

“I think it’s important to remember that customers are pretty explicitly telling us that this is not a cost-cutting effort where [they] intend on spending less money on technology or on the cloud,” he said.

Conversely, customers are “reprioritizing,” he said, and “trying to reallocate resources.”

Those observations track with what’s happening within the cloud computing sector as a whole. While the revenue percentages are starting to drop off compared to the pandemic era’s historic highs, cloud adoption continues. It is not stopping or even slowing overly much, despite some alarmist investors’ fears. In fact, cloud cost optimization initiatives are arguably long overdue. Any organization intent on fiscal responsibility ought to assess its cloud environment on a regular basis.

Beyond Cloud Cost Optimization: Layoffs, Generative AI at AWS

AWS’ first-quarter earnings came out the same week as the division, Amazon’s most significant money-maker, carried out more of its 9,000 global layoffs. In sum, Amazon has so far shed 27,000 jobs. More could come.

“Like most leadership teams, we’ll continue to evaluate what we’re seeing in our business and proceed adaptively,” Jassy said.

As for what’s next for AWS, the answer is (as with Azure and Google Cloud) all about generative AI.

“[W]e are adding more dollars … for Large Language Models and generative AI,” Olsavsky said.

Indeed, the generative AI race has heated up quickly this year. Microsoft beat competitors to the punch with the debut of ChatGPT. Google Cloud followed in March with Bard. And Amazon just launched Bedrock. In mid-April, Jassy, in a letter to shareholders, said generative AI will prove vital to the future of AWS. He called the technology “core” to Amazon’s goal of inventing “in every area of our business for many decades to come.”