Big Tech under pressure from cost-conscious cloud customers

Cloud computing’s rapid growth has reached a watershed, as increasingly cost-conscious customers and economic pressures combine to undercut one of Big Tech’s hottest growth markets.

“There is tremendous pressure from customers to cut costs,” said Barry Briggs, former Microsoft executive and now analyst at Directions on Microsoft, an independent research firm.

After seeing cloud prices skyrocket as companies like Amazon, Microsoft and Google move much of their computing to platforms run by them, many customers are getting smarter at figuring out how to squeeze money out of their cloud spending, he added.

Amazon and Microsoft both pointed to customers’ efforts to “optimize” their cloud spending for a surprising drop in cloud growth in recent quarters.

Revenue from Microsoft’s Azure cloud platform increased 42% before being affected by foreign currency fluctuations, which was lower than expected. Amazon Web Services revenue, on the other hand, grew 27%, the slowest quarterly growth rate since Amazon began separating cloud revenue from overall revenue.

The pressure to grow comes as many large enterprises face rapidly escalating costs as they move more computing to the cloud. The CTO of a large bank complained that despite the efficiency gains from the largest operations, the largest cloud companies hadn’t moved fast enough to reduce flat rates for things like storage and compute as the business soared.

Also Read :  University Adds Third High Performance Computing System to On-Campus Research Data Center

Companies have tried to put on a brave face about their lack of growth, saying they are working with customers to help them get more value from their services, and this will pay off in the long run.

“In this particular period, we think we’re going to optimize for long-term customer loyalty,” Microsoft CEO Satya Nadella told analysts after the company’s latest earnings call.

But the results surprised Wall Street and pointed to an unexpected slowdown in the hot cloud market, which most experts believe is still in its infancy.

The company is trying to turn the downsizing to its advantage by compensating for the pressure on spending by getting customers to buy more services or sign long-term contracts.

Amazon said one way it helps customers cut costs is by moving computing workloads onto their own chips. It’s already designed its own high-performance processor called Graviton and an accelerator that speeds up machine learning calculations called Trainium, competing directly with established chip companies like Intel and Nvidia.

Also Read :  The 3 Most Undervalued Quantum Computing Stocks to Buy Now

AWS is also offering discounts to customers who send more of their cloud business to their data centers, potentially driving out smaller competitors.

“They want you to spend a lot of money and grow on the platform without considering other cloud providers,” says Corey Quinn of The Duckbill Group, a consulting firm for businesses looking to reduce their cloud bills.

“They like to use terms like ‘all in’ on a particular cloud or ‘preferred cloud provider’. That might get you a bigger discount, but in return you’re a reference for them, not for others. I agree to be.” queen.

“Customers who make larger, longer-term commitments to AWS tend to get the best economics,” said Elizabeth Baker, Vice President of Global Deal Strategy and Programs, AWS. “We don’t tell our customers where to run their workloads, and vendor choice doesn’t affect pricing.”

Also Read :  Indian Scientists Find Efficient Way To Quantify Quantum Entanglement In Higher Dimensional Systems

Meanwhile, Microsoft is working to more closely tie previously unique cloud services such as Azure, Microsoft 365, and Dynamics. [itself] to our customers,” said Briggs.

According to analysts, cloud companies are also offering deals to keep customers locked up longer. By committing to using resources on one of the clouds for several years, customers will save 70 to 80 percent of their bill, Briggs said. “It can bring in pretty significant savings,” he said.

Gartner analyst Michael Silver said customers are finding that they can get “negotiating leverage” with cloud companies by planning better and buying services up to five years earlier.

But despite renewed pressure from customers to be more efficient with their cloud spending, most experts said there’s little sign of more competition in the cloud industry.

Silver said companies face high switching costs if they try to move computing to other cloud players. “And once you switch, you get stuck with the new provider and you end up with the same problems as them,” he added.

Source

Leave a Reply

Your email address will not be published.