Amazon Web services have been its parent company’s biggest growth driver for most of the past decade, taking business from some of the world’s biggest technology providers.
But as corporations face the scariest economic environment since the 2008 financial crisis, those massive checks they’re writing to AWS for their technology infrastructure are getting more scrutiny.
Peter Kern, CEO of an online travel company Expedia Group, sees the cloud as an area where his company can reduce its fixed costs. In recent years, Expedia has moved significant portions of its operations to AWS from on-premises data centers.
“We haven’t fully optimized 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.”
US stocks are poised to close out their worst year since 2008. Central bankers continued to raise interest rates to deal with rising prices, fueling concerns among consumers and businesses about a worsening economy. Executives are in cash-conservation mode to calm Wall Street and make sure they can weather a potential recession.
The National Football League, which uses AWS to produce statistics and schedules, is making conservative plans about spending, said Jennifer Langton, the NFL’s senior vice president of healthcare 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 on the terms of a renewed multi-year agreement and has some areas her organization wants to prioritize, she said.
Amazon knows that customers face challenges. In some cases, Amazon’s cloud staff are reaching out to customers to see how it can help optimize costs, said David Brown, AWS’ vice president in charge of the EC2 core computing service. In other cases, customers contact AWS, he said.
AWS is coming off its slowest period of expansion since at least 2014, the year Amazon began reporting the group’s finances. It also missed analysts’ forecasts. Still, the division saw growth of 27.5%, outpacing Amazon’s overall growth of 15%. And it generated $5.4 billion in operating income, accounting for more than 100% of the parent company’s profit.
With such a huge cash balance, AWS can afford to accommodate customers in the short term if it means more business in the future. The company did the same during the 2020 pandemic, when Amazon sent some users an email offering financial support.
AWS isn’t the only major cloud provider to address customer budget constraints. In the third quarter, of Microsoft Azure consumption growth has slowed as the company has 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 want to tighten your belt, the cloud is the place to do it,” AWS CEO Andy Selipsky said during his keynote presentation to more than 50,000 people on Tuesday. Selipski said moving IT jobs to the cloud can help organizations with tight budgets save money, citing clients Agco and Carrier Global.
Not everyone agrees. Last year, investors Sarah Wang and Martin Casado of the venture firm Andreessen Horowitz published analysis showing that a company could cut its computing costs in half or more by moving workloads from the cloud back to on-premises data centers.
Amazon is trying to give customers options to cut costs. It offers Graviton compute instances based on energy-efficient Arm-based chips, a cheaper alternative to instances using standard AMD and Intel processors.
“Customers of all sizes have adopted Graviton and are achieving up to 40% better cost performance simply by moving their workloads to Graviton instances,” Selipski said. He said AT&TThe DirecTV division was able to eliminate 20% of computing costs by adopting current-generation Graviton chips.
Selipski told CNBC’s John Fort in an interview that AWS teams are working with customers trying to become more efficient.
“We’re seeing some customers who are now tightening their belts,” Selipski said. One example is the manufacturer of data analysis software Palantirwhich said last month that its operating profit in the third quarter was higher than expected mainly due to cloud and deployment efficiency.
Other companies are on the trend. NetApp and VMware have acquired startups to help businesses streamline their cloud spending. On the Reinvent show floor, several companies touted their cost-cutting capabilities.
Zesty, which announced a $75 million funding round in September, added Sainsbury and Silicon Laboratories to its client list in the current quarter. The company’s technology can automatically adjust the amount of storage space the company uses to avoid wastage.
CEO Maxim Melamedov said Zesty had picked up a bunch of new potential customers at its Reivent booth, where the startup was giving away 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 who are constantly on our feet. We talk all the time.”
WATCHING: AWS CEO Adam Selipsky on impact of slowing economy, cloud consumption