After sailing through the pandemic and weathering the first waves of economic uncertainty earlier this year, the cloud service provider market has finally hit a rough patch.
While Microsoft’s intelligent cloud business, which includes Azure, continued to grow, its rate of expansion slowed. Its segment revenue grew grew 20% to $20.3 billion in Q1 2023 for the period ending Sept. 30. But that was down 11 percentage points from 31% growth for the same quarter last year.
Alphabet, Google’s parent company, reported $6.9 billion in revenue from Google Cloud in its Q3 earnings report for the period ending Sept. 30, up 37% year over year. That still represents a slowdown from the 45% year-over-year growth in cloud revenues Alphabet reported in Q3 of 2021. Google Cloud lost $699 million this quarter.
Amazon’s market-leading AWS grew 27% year over year, reporting net sales of $20.5 billion for Q3 2022 on Thursday. In the same quarter last year, it reported 39% growth year over year.
After expenses, AWS reported an operating income of $5.4 billion this quarter for the period ending Sept. 30.
Messages are mixed as for what’s to blame. IT budgets are expected to grow by an average of 5.1% heading into 2023, but lag behind an inflation rate of 6.5%, according to Gartner.
As the cloud market expands, the big three CSPs cannot maintain the rates of expansion they celebrated in the early days of the technology. Even AWS, which controls more than one-third of the market share, has seen slowed growth as the market matures.
With C-suite executives bracing for a possible recession, cutbacks in cloud spending — particularly on trimmable “as a service” infrastructure and software offerings — is a short-term, belt-tightening solution.
At the same time, modernization, digital transformation and cloud migration are broadly viewed as a cost-saving move over the long haul.
“In a world facing increasing headwinds, digital technology is the ultimate tailwind,” Satya Nadella, Microsoft’s chairman and CEO, said during Tuesday’s earnings call. “And we're innovating across the entire tech stack to help every organization, while also focusing intensely on our operational excellence and execution discipline.”
Microsoft announced in July it was extending the lifespan of its cloud server and network equipment from four to six years as a cost-saving measure that it hoped to pass on to its customers during last quarter’s earnings call.
Saving money through cloud remains as a hedge against economic downturn remains a salient theme for all three of the big CSPs.
“The long-term trends that are driving cloud adoption continue to play an even stronger role during uncertain macroeconomic times,” Sundar Pichai, CEO of Alphabet, said during an earnings call on Tuesday. “Google Cloud helps customers solve today's business challenges, improve productivity, reduce costs and unlock new growth engines.”
