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Date: 2022-11-01 21:35:00
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Cloud computing’s once-meteoric rise appears to be leveling out, tempered by more watchful end-user spending as a looming recession encourages more measured IT investment. It looks like the free-for-all days of cloud adoption and spending – particularly unfettered during the COVID-19 pandemic – have ended.
That’s a not a bad thing, frankly. In many cases, it means more organizations are at last paying attention to how much they’re spending on cloud. A successful company controls its expenses. And when cloud computing eats an ever-greater portion of the IT budget, executives need to assess and adjust the outlay.
Of course, cloud computing providers and their investors might see the situation in a different light. After all, who wouldn’t welcome a seemingly infinite parade of record growth? But even Wall Street’s hopes can’t impinge on the laws of physics – or financial physics, if you will – that what goes up must come down.
That’s not to imply that cloud computing adoption is dropping in any dramatic fashion. It’s not. It’s simply to say that everything reaches a ceiling. And after two years of pandemic-driven frenzy, adoption is becoming more even. That’s happening within each of the hyperscalers. They serve as leading indicators of what lies on the horizon for the cloud computing sector.
Each of the Big 3 – Amazon Web Services, Microsoft Azure and Google Cloud – continues to report growth. Let’s be clear about that. Even though the numbers may not meet company or analyst projections, the hyperscalers are still adding customers. Furthermore, those users are consuming more services. It’s just that the rates at which they’re doing so are no longer blistering-hot.
To that point, AWS revenue hit $20.5 billion for the third quarter of 2022. That marked a 27% increase. But yes, it was still less than AWS or analysts expected. Brian Olsavsky, CFO of Amazon, parent company of AWS, attributed the numbers to just what we noted above.
Amazon’s Brian Olsavsky
“With the ongoing macroeconomic uncertainties, we’ve seen an uptick in AWS customers focused on controlling costs,” Olsavsky told analysts on Oct. 27 when Amazon reported its earnings. And we’re proactively working to help customers cost optimize, just as we’ve done throughout AWS’ history, especially in periods of economic uncertainty.”
Because AWS remains the largest public cloud computing provider in the world, it serves as the lead predictor for the sector overall. To that point, AWS’ owner, Amazon, has implemented a hiring freeze that has trickled into the cloud division, and is keeping a careful eye on its own spending. In essence, Amazon appears to be bracing itself for a recession.
There’s a similar feel over at Microsoft, which recently cut almost 1,000 jobs throughout the company.
The trouble with discussing Microsoft’s cloud unit, Azure, though, is that Microsoft does not break out that division’s earnings. It only provides revenue percentages. In the two years Microsoft has published that data, this latest quarter (its fiscal first quarter, rather than rivals’ 2022 third quarter) showed Azure’s slowest growth rate yet. To that point, revenue went up 35%, but that was down compared to the previous report’s 40%, and compared to 50% growth a year ago.
Of the Big 3, Google Cloud may have experienced the most surprising quarter. The 14-year-old division of Alphabet has yet to report a profit. However, its third-quarter revenue soared 38%, to $6.9 billion. Analysts were forecasting $6.7 billion. Google Cloud also narrowed its losses, perhaps pointing to a slow crawl toward profitability.
The bigger item to note here is that Google Cloud’s revenue outpaced Azure’s. Given that Azure ranks about four times larger than Google Cloud, this is significant. Google Cloud, under CEO Thomas Kurian, continues to focus on acting as “the data cloud” and those efforts appear to be paying off. The company has lifted its recent hiring freeze.
Nonetheless, the cloud computing industry is coming up against some challenges. Higher energy costs are hurting providers’ financials (which means those costs will pass to channel partners and their customers). Microsoft, for example, expects to pay …