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Oh dear, AWS. Cloud growth slowing as customers get a dose of cost reality

Bit factory giants see sales slimming in economically challenged times, party still far from over

Research from tech services membership and standards body The Uptime Institute is showing slowing growth in the major cloud providers, suggesting that the era of hyper-expansion is drawing to a close.

In a report published this week, the institute said that AWS reported a quarter-on-quarter revenue increase of 27.5 percent for Q3 2022, this is down from 33 percent in Q2 — which it noted was "the slowest growth in its history."

Yep, 35% growth is 'disappointing'

Meanwhile, Microsoft's CFO Amy Hood pointed out Azure could see revenue growth decline in their next quarter, following disappointing 35 percent growth in the three months to September 2022. The tech giant reports its fourth fiscal quarter of 2022 on 24 January.

Google's cloud growth was up to nearly 38 percent in Q3 of 2022, from 30 percent in Q1, this is down from a high of 58 percent in Q1 of 2021. While these figures would represent staggeringly positive growth in any other industry, among cloud providers they represent a mood change.

AWS, for example, seen revenue increase by 30 percent to 40 percent every year since 2014 (when it recorded an 80 percent jump in turnover). Microsoft Azure and Google have reported similar digit digit gains in recent times.

The Uptime Institute attributes the slowdown to economic realities. Cloud buyers are seeing higher energy costs together with other kinds of inflation, making them cautious about spending money.

Public cloud is not always cheaper than on-premises implementations, and many organizations may have concluded that migration is just not worthwhile

"Cloud development projects are no different from many others and are likely to be postponed or deprioritized due to rising costs, skill shortages and global uncertainty," the report says.

"Public cloud is not always cheaper than on-premises implementations, and many organizations may have concluded that migration is just not worthwhile in light of other financial pressures," the institute adds.

Meanwhile, organization already running a significant chunk of their systems in the cloud were looking to save money by optimizing workloads and costs in the cloud.

"Hyperscaler cloud providers, which are more interested in building longer-term relationships than in deriving higher gross margins in the short term, offer tools to help users reduce expenditure. These tools have improved significantly over the past few years," the report says.

While the combined effect of slowing growth and cost-savings was hitting cloud providers — AWS's Q3 2022 gross margin was 26 percent, down 3 percent down on Q2, some of which was down to rising energy costs.

"While the days of 40 percent revenue jumps may be over, this recent downturn is unlikely to be the start of a rapid downward spiral. AWS's Q3 2022 revenue growth may have shrunk in percentage terms: but it was still in excess of $4 billion," the report says.

Meanwhile, this week, Gartner forecast software spending, of which cloud is a component, would enjoy 9.3 percent growth through 2023.

Speaking to The Register, John-David Lovelock, distinguished VP analyst at Gartner, said businesses were finally catching on to the idea that the cloud was not necessarily cheaper than in-house or third-party datacenters for all workloads.

"Workloads that are data intensive rather than compute intensive don't go well in the cloud. This has been known for 10 years. So, if it's taking you a million-dollar-a-month lesson to learn it, sorry. But if that's what it takes for you to learn the lesson, terrific. You've learned it," he said.

Nonetheless, it is unclear whether the message is getting through to the UK government. In a Parliamentary hearing this week, top civil servants in charge of migrating central government ERP to the cloud seemed convinced of the savings they would create.

"We have built… the understanding that a lot of the savings do not come only from commercial re-procurement and moving to the cloud; they also come from more standardisation," Alex Chisholm, chief operating officer for the civil service and permanent secretary for the Cabinet Office, told MPs. ®

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