February 3, 2023
Late Thursday afternoon, both Amazon and Alphabet — the respective owners of hyperscalers Amazon Web Services and Google Cloud — reported fourth-quarter 2022 earnings. As analysts and observers had forecast, each showed flagging, albeit not moribund, cloud revenue amid tough economic challenges.
For example, AWS reported a 20% rise in sales (compared to 27.5% in the previous quarter), reaching $21.4 billion. Analysts were predicting $21.87 billion. Meantime, Google Cloud saw $7.32 billion in revenue, an increase from its $6.9 billion in sales in the third quarter (note that Google Cloud still has yet to record a profit, even though it did narrow its operating losses). All of those numbers rank closely with Microsoft’s Intelligent Cloud earnings from late last month. The division, which includes Azure, revealed 18% revenue growth for $21.5 billion in revenue.
Spending Numbers Remain Significant
All in all, any drops in public cloud spending were not as precipitous as observers might have feared. While they no longer are hitting the consistent 30% quarter-over-quarter gains experienced in recent years, the numbers remain significant. They simply indicate organizations have at last started to scrutinize their public cloud spending, making necessary expense and optimization adjustments. Indeed, Amazon and Alphabet said as much on Thursday.
Amazon’s Brian Olsavsky
“Starting back in the middle of the third quarter of 2022, we saw our year-over-year growth rates slow as enterprises of all sizes evaluated ways to optimize their cloud spending in response to the tough macroeconomic conditions,” Brian Olsavsky, CFO of Amazon, told analysts on a Feb. 2 earnings call. “As expected, these optimization efforts continued into the fourth quarter.”
Alphabet’s Sundar Pichai
Alphabet CEO Sundar Pichai made a similar statement during a Feb. 2 earnings call with analysts, too.
“In Q4, we saw slower growth of consumption as customers optimized GCP costs, reflecting the macro backdrop.”
It’s Time to Be ‘Cautious’
To be sure, end users are adapting to a post-pandemic world where unfettered technology adoption and only cursory attention to costs no longer make sense. Few entities can afford to throw away money into perpetuity. Andy Jassy, CEO of Amazon and former head of AWS, acknowledged the truth of that to financial analysts.
AWS’ Andy Jassy
“I think most enterprises right now are acting cautiously,” he said on Feb. 2. “You see it with virtually every enterprise, and we’re being very thoughtful about streamlining our costs as well. And when you are being cautious, you look for ways that you can … spend less money.”
As such, organizations have started to embrace public cloud spending optimization and management, thanks in large part to insight and guidance from their channel partners. But, for his part, Jassy said expertise is coming from AWS itself as well.
“[W]e’re going to help our customers find a way to spend less money. We are not focused on trying to optimize in any one quarter or any one year, we’re trying to build a set of relationships in business that outlast all of us,” he said.
Cloud Providers Reining in Growth Rates
Of course, the effects of organizations’ reduced public cloud spending trickle up to cloud providers, reining in the growth rates on their multibillion-dollar revenues.
And that in itself reflects the new reality setting in throughout the tech sector: The need to operate more lean companies, rather than running big-kid playgrounds complete with game rooms, elaborate cafeteria menus, bowling alleys, free laundry service and more. The thousands of layoffs taking place at Amazon, Google and Microsoft serve as testaments to years of excess outlay all while overhiring, especially during COVID-19 to meet peak public cloud demand.
As of mid-afternoon on Friday, Amazon stocks were trading down 5.8% at $106.23. Alphabet’s had dropped 2.11% to $105.45. And Microsoft shares were hovering around $260.
Want to contact the author directly about this story? Have ideas for a follow-up article?
About the Author(s)
You May Also Like
November's Top 20 Stories: Broadcom-VMware, AI in UCaaS, Google Cloud Shake-UpDec 04, 2023
Digital Transformation 2.0? IT Teams Look Ahead to 2024Dec 05, 2023
Insight-SADA Deal Makes Tony Safoian Richest Man in the ChannelDec 04, 2023
AWS re:Invent Partner, Vendor News: Cisco, Salesforce, MoreDec 01, 2023