AWS faces cost-sensitive clients at Reinvent as financial fears mount

Amazon Web Services has been the biggest growth driver for the parent company over the past decade, taking over business from some of the world’s largest technology providers.

But as companies face the scariest economic environment since the 2008 financial crisis, those massive checks they write to AWS for their tech infrastructure are coming under increasing scrutiny.

Peter Kern, CEO of the online travel company Expedia group, sees the cloud as an area in which his company can reduce its fixed costs. In recent years, Expedia has moved significant portions of its operations from on-premises data centers to AWS.

“We haven’t fully optimized cloud yet,” Kern said during the company’s conference call last month. “We’ve moved a lot of technology to the cloud, but we still have work to do.”

US stocks are about to end their worst year since 2008. Central bankers have continued to raise interest rates to counter rising prices, making consumers and businesses nervous about the economic deterioration. Executives are in cash-saving mode to appease Wall Street and ensure they are ready to weather a potential recession.

The National Football League, which uses AWS to generate statistics and schedules, is making conservative plans on costs, said Jennifer Langton, the NFL’s senior vice president of health and innovation.

“We’re not recession-proof,” Langton told CNBC during an interview at AWS’s annual Reinvent customer conference this week in Las Vegas. The league is negotiating the terms of a renewed multi-year agreement with AWS, and there are some areas her organization wants to prioritize, she said.

Amazon knows customers face challenges. In some cases, Amazon cloud workers are reaching out to customers to see how this can help optimize spend, said David Brown, AWS vice president responsible for EC2’s core computing service. At other times, customers turn to AWS, he said.

AWS has been through its slowest expansion since at least 2014, the year Amazon began reporting the group’s finances. It also missed analyst estimates. Still, the division posted 27.5% growth, outpacing Amazon’s overall growth of 15%. And it generated $5.4 billion in operating income, which is more than 100% of its parent company’s earnings.

With such a large cash balance, AWS can afford to accommodate customers at short notice if it means more business in the future. The company did the same during the 2020 pandemic, when Amazon emailed some users with an offer of financial assistance.

AWS isn’t the only major cloud provider grappling with customers’ budget constraints. in the third quarter, Microsoft’s Azure consumption growth slowed as the company 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’re looking to tighten your belt, the cloud is the place to be,” AWS CEO Adam Selipsky said during his keynote presentation to over 50,000 people on Tuesday. Selipsky said moving IT jobs to the cloud could help budget-strapped companies save money, citing customers Agco and Carrier Global.

Not everyone agrees. Last year, investors Sarah Wang and Martìn Casado of venture firm Andreessen Horowitz released an analysis showing that a company could cut its compute costs by half or more by moving workloads from the cloud back to on-premises data centers.

Amazon is trying to offer customers ways to cut costs. It offers graviton computing instances based on energy-efficient Arm-based chips, a cheaper alternative to instances using standard AMD and intel processors.

“Customers of all sizes have chosen Graviton and are realizing up to 40% better price/performance simply by offloading their workloads to Graviton instances,” said Selipsky. He said AT&TThe DirecTV unit was able to save 20% in computing costs by using current generation Graviton chips.

Selipsky, CNBC’s Jon Fortt said in an interview that AWS teams work with customers who are trying to become more efficient.

“We’re seeing some customers tightening their belts now,” Selipsky said. An example is the manufacturer of data analysis software Palantirlast month said its third-quarter operating profit was higher than expected, primarily due to cloud and delivery efficiencies.

Other companies follow the trend. NetApp and Vmware have acquired startups to help companies optimize their cloud spend. At the Reinvent exhibition space, several companies promoted their cost-cutting opportunities.

Zesty, which announced a $75 million funding round in September, added Sainsbury’s and Silicon Laboratories to its list of clients in the current quarter. The company’s technology can automatically adjust the amount of storage space a company uses to avoid wastage.

CEO Maxim Melamedov said Zesty picked up a number of new leads at its Reivent booth, where the startup gave out candy, socks and stuffed animals and gave visitors a chance to win AirPods.

“Some of my guys lost their voices,” Melamedov said. “We are 15 people who are always on our feet. We talk all the time.”

CLOCK: AWS CEO Adam Selipsky on the impact of the slowing economy and cloud consumption

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