June 16, 2022
We all know the drill by now — a financial analyst or two writes a memo and various websites latch on to one nugget as overarching fact. In this case, we’re talking about Morgan Stanley’s concern that big tech firms may reduce their cloud computing spending amid economic volatility. There’s also an article floating around about how customer outlay at Amazon Web Services, Microsoft Azure and Google Cloud fell in April. The underlying (sensationalized) messages all around? That spending on cloud computing, one of tech’s greatest success stories of all time, is in jeopardy of decline. But is that the case?
Clearing the Air
Let’s be clear, starting with the Morgan Stanley memo. Here, analysts were referring to software and internet companies potentially slowing their cloud computing spending over the coming year.
“Increased focus on cash preservation among tech companies is likely to impact spend on data centers,” wrote research analysts Meta Marshall and Joe Moore, via Barron’s.
Let’s also be clear that big tech cannot risk losing customers by cutting budget for the very services that provision their own capabilities. Still, like any organization, big tech probably could stand to assess its cloud computing spending. Waste runs rampant in the cloud world no matter the type of entity. Developers turn on test buckets and forget to turn them off. IT doesn’t set parameters for after-hours consumption. Organizations fail to rein in the number of cloud services and platforms they use and end up paying for duplicate capabilities. The examples of cloud waste could go on ad nauseam.
Now let’s address the article that posits organizations spent less with AWS, Azure and Google in April. We’ll know the full facts when second-quarter earnings come out, but it is vital to note that YipitData — the company whose findings on which the article is based — gets its cloud computing spending data from an unnamed cloud computing expense management and optimization provider. As such, it’s a no-brainer that organizations’ cloud computing spending will have gone down. The whole point of such a vendor’s platform is to trim waste and control ongoing costs. (In fact, channel partners should already be helping clients control their cloud computing spending, particularly in the wake of COVID-19.)
Consider, too, that some of these customers may have renegotiated their long-term contracts. That would account for less spending. Regardless, keep in mind that even if one organization spends less with an AWS or Azure or Google, another will make up for that gap.
With all that context, instead of concluding that cloud computing spending stands on the verge of a slowdown, Channel Futures is asking the bigger question: Are we actually looking at a long-overdue stabilization in cloud computing spending?
COVID-19 Got Us Here
Time for a history lesson. In early 2020, governments around the world locked down their countries as the novel coronavirus, COVID-19, began to spread. However, people still had to work. Business had to continue. Organizations that could offer remote work either expanded that support or got it off the ground in a rush as the pandemic kicked into high gear. Cloud computing, of course, provided the means to achieve uninterrupted operations. And in that rush, many a company, nonprofit, government agency and other entity over-provisioned their cloud computing resources. (In fall of 2020, Channel Futures wrote about the partner opportunity to help clients monitor and control their cloud computing spending.)
In 2021, as COVID-19 continued, a lot of IT and finance professionals understood that they were probably using more cloud computing than necessary, and therefore overpaying. More organizations started to track their cloud computing spending. They did this either through spreadsheets or home-grown monitoring systems (not very effective approaches, given all the containers, databases, cloud brands and amounts of information in play), or through targeted platforms from the likes of Yotascale, Tangoe, CloudHealth or Turbonomic, among many others.
In 2022, one could argue organizations continue to overpay and have more progress to make. To that point, Flexera’s State of the Cloud report shows respondents estimated their cloud waste at 32%, up from 30% in 2021. Considering Gartner’s prediction that public cloud spending alone will grow almost 24% just this year, that waste represents a significant amount of money.
The Economy Stinks. But Does That Mean an Inherent Cloud Computing Spending Slowdown?
Cloud computing spending will come under scrutiny by executives and shareholders. The economy, to put it politely, stinks right now. Everyone, from consumers and businesses to nonprofits and governments, is…
…concerned and impacted. Inflation is sky-high. Enthusiasm for tech IPOs has shriveled. Tech companies, once seemingly impervious, are implementing layoffs and delaying hiring (even as they experience an unprecedented talent shortage). And as Morgan Stanley’s analysts point out, big tech itself may take a more measured approach to its own cloud computing spending.
Yet does any of that mean trouble for cloud channel partners? We think not. It is extremely difficult to envision a managed service provider such as AllCloud, Ensono or SADA losing mass cloud business, even in the face of another recession. Indeed, SADA is so confident it just promised Google Cloud it will sell $2.5 billion worth of the cloud provider’s services over the next three years.
During COVID-19, cloud computing changed the way the world literally works. It proved itself. There is no going back. While cloud computing does not save the piles of money everyone anticipated when the technology took off more than a decade ago, it pays for itself. Organizations can lease or buy fewer physical offices. Employees can save on fuel (especially critical as Russian’s war on Ukraine has ramped up gas and diesel prices). Travel expenses go down.
So, are we really looking at a slowdown in cloud computing spending, even in the face of a recession? Or are we looking at stabilized spending as organizations better understand and control their 2020, COVID-19-rushed rollouts? The latter appears most likely. Channel partners need not fret that their customers are going to suddenly put the brakes on cloud computing spending (and clients on contract simply cannot).
Channel Futures will explore more of this issue over the coming weeks. We’ll be reaching out to sources; we also welcome our readers to submit their thoughts on this topic. Find the contact information below.
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