When Amazon announced it was laying off another 9,000 employees today, AWS employees were not exempt with Amazon CEO (and former AWS CEO) Andy Jassy announcing the cloud division would be included into today’s round.
TechCrunch is hearing that around 10% of today’s total came from AWS. The company would not confirm those numbers, instead referring to Jassy’s memo to employees that was published this morning as the gist of its statement.
According to that memo, the reason the company is doing the layoffs in stages is that some managers were still evaluating their departments and they weren’t ready at the time of the first round. “The short answer is that not all of the teams were done with their analyses in the late fall; and rather than rush through these assessments without the appropriate diligence, we chose to share these decisions as we’ve made them so people had the information as soon as possible,” Jassy wrote.
Ray Wang, founder and principal analyst at Constellation Research, says that Amazon has had to look carefully at every aspect of the organization, and AWS was no exception. “This is part of a larger trend of tech companies getting lean again, and Amazon had gotten bloated in years past. They finally completed their analysis a few weeks back and now AWS has cuts too,” he said.
In the company’s most recent earnings report at the beginning of last month, the cloud division’s growth rate dipped to 20%, down from over 39% growth the previous year. To make matters worse, CFO Brian Olsavsky telegraphed that growth was slowing even more. “As we look ahead, we expect these optimization efforts will continue to be a headwind to AWS growth in at least the next couple of quarters. So far in the first month of the year, AWS year-over-year revenue growth is in the mid-teens,” he said at the time.
Against that backdrop, the layoffs shouldn’t come as a surprise. In fact, the cloud infrastructure market overall has been experiencing slowing growth. After years of runaway numbers, cloud spending is being curtailed, and it’s starting to have an impact on the market. At the close of the most recent earnings reports cycle, the cloud infrastructure market slowed overall to 21% growth, down from 36% growth the prior year.
What’s more, Amazon’s long-time rival Microsoft gained market share. While Microsoft’s growth also slowed last quarter, the company has been growing faster and is starting to gain slowly but steadily on AWS.
That said, John Dinsdale, chief researcher and research director at Synergy Researcher Group, a research firm that watches the cloud infrastructure market, says that in spite of these numbers, the market still is growing substantially, and has been dogged by external factors like “an historically strong US dollar and a severely restricted Chinese market.”
Dinsdale says the layoffs are understandable given the market drop, but he doesn’t think it’s cause for alarm.. “So, is the market growth rate dropping? Yes. For companies whose revenues and organizations have grown at staggering rates, is there room for rationalization and some cost cutting? Yes. Is the sky falling? No,” he said.