Silver linings: cloud computing faces post-pandemic test | WARC | The Feed

Silver linings: cloud computing faces post-pandemic test

Big tech’s cloud businesses hint at some business caution, and a much longer game, as growth remains solid but slightly less frothy across the big three computing providers than it was a year ago.

Why it matters

Cloud computing is a vital source of growth for the three biggest providers – Amazon, Microsoft and Google – or at least it had been over the last three years as businesses rushed to transform their digital operations.

The tricky part is that its biggest selling point, that the customer can cut down (or “optimise” as executives like to put it) their spending in times of lower demand, might be a bigger draw than exciting new capabilities.

Of course, this then means that providers must play a longer marketing game, in which their powerful future capabilities become the real draw. What’s interesting, however, is that though all three have touted their generative AI chops, the emerging picture is mixed.

What’s going on

First, some cloud business results:

• Amazon’s cloud division, AWS, grew 16% year on year to $21.4bn, slowing from 20% in Q4, and 37% in the same quarter last year.
• Microsoft’s cloud, which has enjoyed a lot of the ChatGPT hype, grew 25% year on year to $28bn, slowing slightly from 33% in the same period the year before.
• Google’s cloud services grew 28% to $7.5bn, versus a 44% increase last year – it’s also worth noting that this is a much smaller business than its rivals’.
  

These growth figures are undeniably very strong but they start to show that the field is getting more competitive, with AI at the heart of the argument especially when speaking to investors. From last week’s earnings calls:

• Sundar Pichai, Alphabet CEO: “[O]n Cloud, this has been an important moment as pretty much every organization is thinking about how to use AI to drive transformation. And so across the board, from start-ups to large companies, they are engaging with us.”
• Satya Nadella, Microsoft CEO: “Azure OpenAI Service brings together advanced models, including ChatGPT and GPT-4 with the enterprise capabilities of Azure. From Coursera and Grammarly to Mercedes-Benz and Shell, we now have more than 2,500 Azure OpenAI Service customers, up 10x quarter-over-quarter.”
• Brian Oslavsky, Amazon CFO: “Given the ongoing economic uncertainty, customers of all sizes in all industries continue to look for cost savings across their businesses, similar to what you’ve seen us doing at Amazon. As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter.”

Only one company suggested there was some reticence among customers, which is interesting considering that Amazon – despite a long-standing interest in AI – was the last to announce an AI capability for cloud customers. But it is also the biggest, and perhaps like Google's exposure to lulls in search advertising, Amazon is suffering (ever so slightly) from its prior success.

Bottom line

Amazon CEO Andy Jassy noted that there is still a lot of headroom for cloud computing, and therefore a lot of competition, with around 90% of IT spending still on premises.

The question now is whether AI-inflected cloud services, which are incredibly computing-intensive, will be the next catalyst for growth or whether an uncertain economic climate will favour the provider who makes turning down spend the biggest functional benefit.

Sourced from Amazon, Google, Microsoft, WARC