The reality of cloud spending

10192 The reality of cloud spending

8679 The reality of cloud spending

It’s one thing for CIOs to say that cloud computing will see the highest rate of spending growth in 2022, as recorded in a Morgan Stanley survey. It’s quite another thing to actually spend that money. But spending they are, as last week’s results from the big three cloud vendors (AWS, Microsoft, and Google) demonstrated. Yes, growth for each of these cloud providers decelerated. But you’d have to be a committed cloud denier to argue that cloud adoption isn’t continuing to boom, even in the face of a recession. Or, more probably, precisely because of a looming recession.

Raining on the cloud parade?

Over at The Wall Street Journal, Dan Gallagher suggests that “even the cloud can’t float above a recession.” The argument, based on slowing growth within the big three cloud providers, is that recessionary pressure is causing IT decision-makers to cut spending due to macroeconomic uncertainty.

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I’m not sure the data actually lines up with this thesis.

Sure, Google saw growth slow to 36% (down from 44% the quarter before). Microsoft hit 40%, down from 46%. And AWS? Down a few percentage points, settling in at 33% (down from 37%). That’s bad, right?

Maybe. First, growth is always bound to slow as the underlying numbers get bigger. AWS, for example, notched nearly $20 billion in the quarter. How many businesses can you name that grow 33%, much less 3%, on such a massive base? It’s much easier to grow at 100% every quarter (as each of the cloud vendors used to do) when the underlying numbers are much smaller. It’s historically unheard of to grow at the rates that each of the big three cloud vendors are showing. Google, the smallest of the three by market share, still managed an impressive $6 billion in revenue and grew 36%. This is astounding growth.

By comparison, and as one example, in 2019 the U.S. Bureau of Labor named healthcare as one of the fastest-growing industries. United Healthcare, the largest U.S.-based healthcare company by market cap, tends to grow in the low single digits (12% last year). What about McKesson? Also 12%. HCA Healthcare? Hardly at all last quarter.

These lower growth numbers are not because these aren’t great companies in fast-growing industries. They are. It’s just that cloud spending is growing even faster, and not just for one or two providers. All the big cloud vendors are booming.

Party like it’s 2008

This brings me to my second point. I am sure CIOs are putting plenty of IT projects on hold as they try to make sense of increasingly challenging economic conditions. That’s normal. But if the recession in 2008 is any indication, this brief respite is just that: brief. In 2008 we saw a few trends actually gain strength and speed, including open source and cloud computing. Why those two? Each affords flexibility to the IT decision-maker, allowing her to scale up or down as needed.

On the Amazon earnings call, Amazon CFO Brian Olsavsky took time to point out that in the 2008 time frame, AWS “noticed that [the recession] did help our cloud business … because, again, when you’re trying to launch a new product or service and you have to face building your own data center and getting capital for a data center and building it yourself or moving to the cloud and essentially buying incremental infrastructure capacity, cloud computing really shows its value.”

What does this mean for you?

For one, if you’re responsible for IT in your enterprise, you’re in good company, both in terms of slowing your spending but also in terms of planning to keep spending. When Morgan Stanley asked IT buyers which areas they’re least likely to cut, digital transformation was topped by only security in terms of a ring-fenced budget item. Digital transformation is generally a matter of moving out of data centers and into the cloud, but even “cloud computing” as a distinct category wasn’t far behind.

Second, we’re spoiled for choice. It would actually be a sign of weakness if one cloud were doing well and the others were limping along. That isn’t the case. Healthy markets depend on robust demand and supply, and in cloud computing, customers have plenty of good options.

All this means that despite, or perhaps precisely because of economic headwinds, now is a great time to get serious about making further cloud investments.

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