Cloud slowdown hits Amazon as orgs look to rein in cost

Off-prem tech is 'SERIOUSLY expensive' Reg reader complains

Fears over stalling cloud services growth have hit Amazon’s share price, despite the company beating Wall Street estimates in its latest results. Microsoft and Google likewise showed better than expected cloud profit and loss accounts, perhaps indicating that such concerns are misplaced.

However, readers who spoke to The Reg have complained that cloud is getting expensive and some experience "sticker shock" after migrating from on-prem.

Net sales for Amazon group went up 9 percent year-on-year to a staggering $127.4 billion for calendar Q1 of 2023, with the company reporting net income of $3.2 billion. Amazon Web Services (AWS), the ecommerce giant’s cloud division, said its sales increased 16 percent to $21.4 billion. However, its operating income was down to $5.1 billion from the $6.5 billion it reported in the first quarter of 2022.

Amazon shares initially rose following release of the results, but fell again as the company warned of a slowdown in growth for AWS during the current quarter.

Andy Jassy, CEO at the online megacorp acknowledged that customers may be holding back just at the moment, but said longer term prospects for its cloud were still looking good.

“While our AWS business navigates companies spending more cautiously in this macro environment, we continue to prioritize building long-term customer relationships both by helping customers save money and enabling them to more easily leverage technologies like Large Language Models and Generative AI,” he stated.

Microsoft likewise reported this week that its cloud division saw revenue grow by 16 per cent to $22.1 billion during its latest quarter, when compared the same period a year ago, and Google Cloud reported its first ever profit with $7.4 billion of revenue and an operating income of $191 million.

According to Synergy Research, while there may be some “angst” about declining cloud growth rates, the cloud sector is at least continuing to grow. The worldwide cloud market grew in value by 19 percent or more than $10 billion during the first quarter, compared with the same period last year, it said.

“Clearly the relatively weak economy has caused some enterprises to more closely review spending on cloud services, but the market continues to grow despite those challenges,” Synergy Chief Analyst John Dinsdale said.

The big three players continue to dominate the market, together accounting for 65 percent of the global public cloud services spend, a similar proportion to that reported a year ago. However, Microsoft and Google both increased their shares by a percentage point, Synergy claimed.

“We still see intention to grow investment in public cloud services in our last spending intent survey from August, and we see that holding firm as Google Cloud grew 28 percent last quarter and Microsoft Azure 27 percent,” said IDC’s senior research director in Europe Andrew Buss.

“However, there is no rush to exit the datacenter in Europe - over half of companies are private IT centric, and only 12 percent are public cloud first (including only 2 percent public cloud only),” he added.

The slowdown in cloud growth is in part due to the economic situation as businesses find their way through a weakening economy, and rising cloud prices won't be helping to ease those worries.

Cloud was sometimes billed by vendor salespeople as a cost-effective way for enterprises to scale up and down their IT resources as required, but according to one source it has become “SERIOUSLY expensive”.

“Whilst it’s true that cloud offers massive flexibility, that fact is used as a primary excuse to move to cloud. Except, these same managers don’t understand that software has to be extensively refactored to consume that flexibility and reduce costs. Thus, after migrating, there is massive ‘sticker shock’,” the techie, who wished to remain anonymous, told us.

Organizations just doing a “lift and shift” to the cloud are bound to hit licensing issues, according to our source. “Tenants using, say, Oracle, or SQL Server on-prem (or colo) are going to have to use that same software in cloud, and that generally comes with MASSIVE licensing constraints." They added: “there’s a reason MSFT has an anti-trust case brewing in the EU”.

Earlier this year, The Register reported on how project management SaaS platform Basecamp quit the cloud altogether in response to “colossal” cloud bills with AWS, claiming it would be cheaper to buy a bunch of servers from Dell and pay for a managed hosting services outfit to look after them.

However, anyone considering a similar move should think carefully, as many of the same forces driving up cloud prices are also making colocation costs and operating your own datacenter more expensive as well. ®

Read more... Further analysis and coverage of AWS's financial results here