Depending on whom you ask, corporate cost cutting on cloud computing is either a waning symptom of pandemic-era overspending or the hottest trend hitting IT departments in 2024.
Either way, one thing is certain: Companies are getting serious about cloud spend.
Cost savings and "optimization" — getting the most value out of what you're already spending on cloud services — were consistent, overlapping themes at the Amazon Web Services re:Invent conference, Amazon's annual cloud conference, which took place from November 27 to December 1 in Las Vegas.
In his keynote address, Adam Selipsky, the CEO of AWS, mentioned cost savings multiple times, pointing to new products, including the Graviton4 chip and EC2 UltraClusters server resources, as opportunities to save money. Werner Vogels, the chief technology officer of AWS, named his keynote address "The Frugal Architect" after a set of guidelines he created to help developers prioritize cost savings.
AWS, the world's biggest cloud provider, saw growth rates slow to a historical low this year, which the company has blamed on customers scrutinizing their cloud budgets amid concerns over a weakening economy. And while Wall Street analysts hope the excitement over generative AI will drive customers to spend more money on cloud services next year, it's clear that optimization won't go away.
Microsoft and Google also saw slowed growth rates in cloud sales.
"There's a clear trend for organizations to be more discerning and careful about their spend on cloud," Sid Nag, the vice president and analyst in the technology and service-provider group at the research and consulting firm Gartner, said.
Nag said he thought the "cost-cutting narrative" of the past year was "a bit overblown" but did exist.
"I'm not seeing any wholesale shutdown of projects as an outcome of any sort of cost-cutting sentiment, but I should say in the same breath that CIOs are being very careful on where they spend their dollars," Nag said.
The pandemic cloud boom
At the beginning of the coronavirus pandemic, companies rushed to spend on cloud-computing storage and services as they transitioned to remote work. Leaders hastily made decisions, and now almost four years later companies are still reckoning with the financial consequences.
"Everybody got the bill from their cloud providers from all the massive, random movements into the cloud during the pandemic, and it was about 2 ½ times what they thought it was going to be, and in many instances, the board of directors wasn't aware of it," Dave Linthicum, the chief cloud-strategy officer at Deloitte, said. "So now they're tasked with optimizing, and that's what you're seeing with all the FinOps and cloud-governance stuff."
The FinOps Foundation is a nonprofit organization promoting a series of "best practices" for cloud spending. In October, AWS became a member, the last of the three big cloud providers — with Google and Microsoft being founding members — to join the foundation.
Some AWS customers saw this as a sign that the cloud giant would take customer concerns about cost cutting more seriously.
A decade ago, when companies began to move to the cloud, budget wasn't a big concern, said J.R. Storment, the founder and executive director of the FinOps Foundation. He added that that had changed in the past few years with more companies having moved more data to the cloud.
"Cloud spend got big enough at most of the Fortune 500s that it's actually material now," Storment said. "The numbers are hitting the CFOs."
Cloud cost-cutting services
To save money on cloud services, customers often must first spend money.
The Venetian Convention & Expo Center, where re:Invent took place, was packed with cloud-optimization companies, including Zesty and DoiT, hawking cost-cutting services.
Craig Lowell, the product-marketing manager at DoiT, said most of his conversations at re:Invent revolved around cost allocation.
"It's about figuring out who's spending what and getting engineering and development teams to take ownership of their own costs and have kind of a wider understanding about how their costs affect the rest of the business," Lowell said.
Customers aren't spending much on generative AI yet
Even though "generative AI is the new sexy thing that everyone is exploring," the technology didn't come up in many conversations about budget, Lowell said.
That could be because companies are still figuring out what they're going to do with generative AI — let alone how much to spend on it.
Companies must consider many factors before deciding how much to spend on generative AI, Nag said, including issues around data privacy and access to GPUs.
"We're in a watch-and-wait period," Nag said.
Linthicum agreed, adding that he expected many companies to readjust budgets in 2024.
"Generative AI is going to take the news cycles, but the real work is in optimization," Linthicum said. "Or, in other words — normalizing technical debt and the ability to kind of get these cloud workloads in some state where they're not going to eat us alive."
Meanwhile, cloud growth has bottomed, Bernstein analysts said this week in a quarterly cloud research note.
"The real question is: How fast will it accelerate?" Mark Schilsky, a Bernstein analyst, wrote in his newsletter last week.
Do you have information or insight to share about AWS or other large cloud providers? Contact Ellen Thomas at ethomas@insider.com or on the encrypted messaging app Signal at +1 (646) 847-9416. Reach out using a nonwork device.
