When it comes to cloud growth, it’s probably safe to say that the sky isn’t falling, even though revenue growth rates have been. We’ve seen the aggregate public cloud revenue growth decline from 32% in Q1 last year to 19% this year. That’s a pretty steep drop-off, and it shows that the cloud has run into some headwinds.
As a result, we have seen folks talking about a great repatriation where cloud workloads will move back on-prem, but the evidence doesn’t suggest that’s happening. Instead, companies may be slowing cloud migration as they look at the most efficient way to distribute their workloads.
Clearly, companies have learned that not every workload is well suited to the cloud. Some that can’t deal with even a little bit of latency to get to the cloud and back, for example, need to be hosted on the edge to be closer to the compute source. But it doesn’t look like many IT departments long to go back to the days of racking and stacking new servers.
So why is public cloud growth slowing down? Customers have started to look at their hefty cloud bills, with budgets coming under ever more intensive review this year, looking for ways to cut costs, which Amazon CFO Brian Olsavsky acknowledged in the company’s earnings call with analysts this week.
“Enterprise customers continued their multidecade shift to the cloud while working closely with our AWS teams to thoughtfully identify opportunities to reduce costs and optimize their work,” he said during the call. In CFO speak, that means that they aren’t abandoning the cloud, but they are taking a hard look at expenses, which is having a pretty significant impact on the company’s cloud growth numbers.
He added that the slowing growth could continue for a couple more quarters, but that overall customers are still high on the cloud. “So far in the first month of the year, AWS year-over-year revenue growth is in the midteens. That said, stepping back, our new customer pipeline remains healthy and robust, and there are many customers continuing to put plans in place to migrate to the cloud and commit to AWS over the long term.”
By now, the value proposition of the cloud, regardless of the vendor, is clear. It allows a level of flexibility that just isn’t possible when you run your own data center, and running your own data center is expensive and requires an entirely different set of skills from running cloud workloads.
So what does all this mean for the cloud infrastructure market revenue growth? If the data is right, it’s going to be fine. It just looks a little dicey in the short term.