Amazon Web Services has been its parent company’s biggest growth engine for most of the past decade, taking business with some of the world’s largest technology vendors.
But as companies face the most discouraging economic environment since the 2008 financial crisis, those massive checks they send to AWS for their technology infrastructure are coming under greater scrutiny.
Peter Kern, CEO of an online travel agency Expedia Group, sees the cloud as an area where his company can reduce fixed costs. In recent years, Expedia has moved a significant portion of its operations to AWS from on-premises data centers.
“We haven’t completely optimized for the cloud,” Kern said on the company’s earnings call last month. “We’ve moved a lot of technology to the cloud, but we have a lot of work to do.”
U.S. stocks are poised to close their worst year since 2008. Central bankers continued to raise interest rates to cope with rising prices, sparking concern over the deteriorating economy among consumers and businesses. Executives are in cash preservation mode to appease Wall Street and ensure they are able to weather a possible recession.
The National Football League, which uses AWS to produce statistics and schedules, is making conservative cost plans, said Jennifer Langton, NFL senior vice president of health and innovation.
“We’re not recession proof,” Langton told CNBC during an interview at AWS’ annual Reinvent customer conference in Las Vegas this week. The league is negotiating with AWS the terms of a renewed multi-year deal, and there are some areas her organization wants to prioritize, she said.
Amazon knows that customers face challenges. In some cases, Amazon cloud employees reach out to customers to see how it can help optimize spend, said David Brown, AWS vice president responsible for EC2 principal IT. At other times, customers contact AWS, he said.
AWS is coming off its slowest period of expansion since at least 2014, the year Amazon began reporting on the group’s finances. It also missed analyst estimates. Still, the division saw 27.5% growth, outpacing Amazon’s overall growth of 15%. And it generated $5.4 billion in operating revenue, accounting for more than 100% of its parent company’s profits.
With such a large cash balance, AWS can afford to accommodate short-term customers if it means more business in the future. The company did the same during the pandemic in 2020, when Amazon sent some users an email with an offer of financial support.
AWS isn’t the only major cloud provider struggling with customer budget constraints. In the third trimester, Microsoft Azure’s consumption growth moderated as the company helped customers optimize existing workloads, CFO Amy Hood said in October. Amazon is the market leader in cloud computing, with an estimated 39% share.
“If you’re looking to tighten your belt, the cloud is the place to do it,” AWS CEO Andy Selipsky said during his presentation to more than 50,000 people on Tuesday. Selipsky said moving IT jobs to the cloud could help budget-strapped organizations save money, citing customers Agco and Global Carrier.
Not everyone agrees. Last year, investors Sarah Wang and Martìn Casado of venture capital firm Andreessen Horowitz published an analysis showing that a company could cut its IT costs by half or more by moving workloads from the cloud to data centers. data on site.
Amazon is trying to give customers options to cut costs. It offers Graviton compute instances based on energy-efficient Arm-based chips, a lower-cost alternative to instances using the standard AMD and Intel processors.
“Customers of all sizes have adopted Graviton, and they’re getting up to 40% better price performance just by moving their workloads to Graviton instances,” Selipsky said. He said AT&TDirecTV’s unit was able to eliminate 20% of IT costs by adopting current generation Graviton chips.
Selipsky told CNBC’s Jon Fortt in an interview that AWS teams work with customers who are trying to become more efficient.
“We’re seeing some customers who are tightening their belts now,” Selipsky said. An example is the manufacturer of data analysis software Palantizewhich said last month that its third-quarter operating profit beat expectations, mainly due to cloud and deployment efficiencies.
Other companies are following the trend. NetApp and vmware have acquired startups to help companies streamline their cloud spend. On the Reinvent Expo floor, several companies were promoting their cost-cutting capabilities.
Zesty, which announced a $75 million funding round in September, added Sainsbury and Silicon Laboratories to its list of clients in the current quarter. Enterprise technology can automatically adjust the amount of storage space a business uses to prevent waste.
CEO Maxim Melamedov said Zesty found a bunch of new leads at its Reivent booth, where the startup was handing out candy, socks and stuffed animals and giving visitors a chance to win AirPods.
“Some of my guys lost their voices,” Melamedov said. “We are 15 people constantly on our feet. We constantly talk.”
LOOK: AWS CEO Adam Selipsky talks about the impact of the slowing economy and cloud consumption
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