The Amazon Web Services team responsible for selling services to startups and small businesses is struggling to meet its 2023 sales goals, two people with direct knowledge of the situation tell Business Insider.
One believes the SMB team will surely miss its targets and said managers are facing mounting pressure to improve their numbers. The other said the startups team was only slightly behind this year's sales goals and no one has hit the panic button yet because AWS expects a handful of its startup customers, like AI upstarts Anthropic and Hugging Face, to really take off and eventually increase their spending. Both people requested anonymity because they are not authorized to speak to the press. Their identities are known to BI.
The poor funding environment for startups this year has sparked a wave of shutdowns, and this has emerged as a risk for AWS.
To be fair, AWS is likely performing much better in other segments. Earlier this week, Amazon's spokesperson, Rob Munoz, told BI that it's "inaccurate" to say AWS's growth is slowing, without specifically referring to the startups or SMB segments. He said AWS likely had the largest absolute revenue growth of any cloud provider in the third quarter, adding $919 million in sales. Other cloud companies might report larger percentage growth, but they're working from a smaller base, he also noted.
On Thursday, an Amazon spokesman shared another statement with BI.
"AWS continues to be the top choice for SMBs and startups by a wide margin," this spokesperson said. "Over 80% of unicorns choose AWS, including innovators like Wiz, Ultimate Genomics, Plaid, Venmo, Acorn, and Robinhood, because they can build fast, keep costs low, and take advantage of industry leading offerings in areas such as generative AI."
Microsoft's Azure cloud business grew 29%, year over year, in the third quarter, while Google Cloud saw revenue climb 22%. That outpaces AWS's 12% growth rate, which was the lowest since first disclosing its financials in 2015, and down from the 27% growth rate it reported a year ago, in Q3 2022.
Each of these cloud companies calculates its cloud growth rates differently, however, so apples-to-apples comparisons are tricky. But the pattern is clear: AWS's rivals have begun to catch up. That is especially true of Microsoft, which is already reporting that new generative AI products are adding to its cloud growth.
AWS built its lead on the back of the startups and SMB segments by better catering to those customers than its rivals. So, the true longer-term risk for AWS is that its competitors become known as a better choice for AI startups, which is the one area of startup investing that has not been squashed with slowing funding.
AWS's Munoz also pointed out that AWS has signed "multiple significant new agreements with customers that begin taking effect in Q4, but that will roll out over several months." He said it's "typical that company's cloud transformations happen in phases," and AWS continues to make "meaningful progress across various segments, including Enterprise, ISVs, Startups, Digital Native companies, and SMBs."
The shortfall in sales in this segment is one of the many challenges facing AWS, alongside employee burnout and a more bureaucratic work culture, as BI previously reported.
Do you work at Amazon? Got a tip?
Contact the reporter Eugene Kim via the encrypted-messaging apps Signal or Telegram (+1-650-942-3061) or email (ekim@jkmperu.com). Reach out using a nonwork device. Check out Business Insider's source guide for other tips on sharing information securely.
