Companies are trimming their expenses amid concerns about high inflation and fears that a recession might be around the corner, and many of them are being more cautious about their cloud costs, leading to a slowdown in one of Amazon’s profitable businesses, the Associated Press reports.
The tech giant’s first quarter earnings report showed its cloud unit generated $21.4 billion and was growing at 16% in the first three months of this year — much slower than the 37% growth rate a year prior. The unit is facing short-term headwinds as companies look for ways to save money by reallocating their spending or cutting back on features they don’t need.
Results for the second quarter aren’t expected to be released until late July, but there’s some indication the slowdown hasn’t reversed course. The company told analysts in April that AWS’ growth rate for that month was 5% lower than the first quarter.
Google and Microsoft, which offer competing cloud businesses, posted strong showings in their respective businesses during the most recent quarter, but they’ve also seen some slowdown in recent months.
Another challenge for Amazon is that businesses are increasingly using multiple cloud services and moving away from single providers, a move that can boost tech options and prevent companies from being reliant on only one vendor. The firm predicts more than 90% of businesses will use multiple providers by 2026, a jump from 76% in 2020.
Despite the pullback, AWS is still expected to be a long-term revenue driver for Amazon. Many companies can’t afford to spend the amount of money it takes to run their own data centers, which would require expensive equipment and real estate.
