The major cloud service providers are saying their customers are winding down last year's optimization efforts. Still, customers are signaling that cloud costs are an important concern in 2024.
On company earnings calls this year, Amazon, Microsoft, and Google all said that cloud optimization — extracting the most value from a cloud budget to keep IT spending down — is a declining trend likely to have minimal impact on revenue this year. While the optimization outlook from the cloud service providers is rosy, it doesn't quite match what customers are reporting.
Results from a survey of IT professionals published this month by Aviatrix, a secure cloud networking software company, suggest that cloud optimization is a more fundamental concern than a trend that cloud service providers say has already passed.
45% of the survey's respondents — half of which were enterprise employees — said cost controls were a major barrier to their company's cloud adoption.
Cloud units at Microsoft, Amazon, and Google all saw revenue grow in the most recent quarter. Sales at Amazon Web Services grew 13% year-over-year, although it has seen several quarters of historic decline in revenue growth. Google Cloud revenue grew 26% year-over-year, up from the quarter before. Microsoft's cloud revenue grew 30% from the same period last year.
Customers and cloud companies tell a different story
Executives at all three major cloud companies said that the impact of cloud cost-cutting was behind them.
"We continue to see the diminishing impact of cost optimizations," Amazon CFO Brian Olsavsky said on the company's earnings call on February 1.
The period of "optimization only," said Microsoft CEO Satya Nadella on January 30, "has ended at this point."
"The cost optimizations are something we have mostly worked through," said Alphabet CEO Sundar Pichai of the Google Cloud business during the company's earnings call on January 30.
Meanwhile, enterprise companies are still "going through budgets line by line" after coming down from a cloud spending spree fueled at the height of the remote work movement in 2020 and 2021, said Bryan Woodworth, director of solution strategy at Aviatrix.
"They were used to writing big checks and closing their eyes about the cost of cloud because it's what they had to do to keep their business afloat," he said.
Now, things are different. Inflation is still high.
"The business appetite for writing big checks in cloud is much different," said Woodworth.
Companies often don't understand exactly what they're spending on in the cloud, the survey found. 65% said they were unsure of all their company's cloud instances. 35% reported cloud cost overruns in the last 12 months, nearly half of which were over $100,000 or $500,000.
"Even for a business to be over $100,000 is a big deal," said Woodworth. "They really are pinching pennies."
Generative AI comes to cloud
All three cloud companies said excitement over generative AI ignited their sales.
"We're seeing more companies turning their attention to newer initiatives and accelerating existing migrations," Olsavsky said on Amazon's earnings call this month.
"AI is definitely something that is driving interest and early adoption," Pichai told investors on the Alphabet earnings call.
David Linthicum, Deloitte's chief cloud strategy officer, said that while generative AI will dominate the tech narrative over the next two years, companies will continue to prioritize cloud cost control behind the scenes.
And despite what the cloud service providers say, optimization isn't a process that takes place overnight.
"It's an investment in money and time," Linthicum said. "But it has to be done because these things can't go on eating two and a half times the resources we thought they were going to eat."
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