Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP), the three largest hyper-scale cloud service providers, reported single-digit year-on-year (YoY) growth in a deal win by annual contract value (ACV) in the fourth quarter of 2022, signaling weakness after the industry’s rapid growth during the pandemic.
This was largely driven by a decline in cloud spending by technology companies across key markets, including the US and Europe. But industry analysts highlighted that demand for cloud computing continued to be resilient in emerging markets, including India and Asian countries, coming from new-age technology firms in these regions. According to data accessed from technology research firm ISG, the three cloud service providers together had only 6 percent YoY growth in ACV in the fourth quarter ended December 2022, down from 57 percent in Q1, 50 percent in Q2, and 20 percent in Q3 respectively.
Industry experts said the single-digit growth was a result of a reduction in technology spending on the cloud across major global social media companies, startups, and Over The Top (OTT) content companies that use cloud services the most. This comes amidst increasing macro-economic uncertainty after hefty interest rate hikes to combat inflation in the US and Europe that have raised the specter of recession and the war in Ukraine leading to supply chain disruptions have dented technology spending.
Cracks have already started to show even at tech giants like Google, Microsoft, Meta, and Amazon among many others both on the corporate and startup side, laying off employees in big numbers, and restructuring businesses in an attempt to cut costs. While the US and European markets are taking the biggest beating, emerging markets including India and Asian countries have remained comparatively better in terms of demand for the hyper-scale cloud services, analysts said.
According to Gaurav Vasu, founder, and CEO of IT market intelligence firm UnearthInsights, if one had to consider Chinese hyper scalers such as Alibaba Cloud in this mix, the dip would be much bigger. Cloud and tech spending for startups, especially in the e-commerce, edtech, and fintech segments, started to slow down 2-3 quarters back in the US. Global social media and major OTT companies to are significantly cutting costs on cloud spending. AWS, Azure, and GCP still managed the dip in India,” Vasu told Moneycontrol.
Individually, ISG said, Google’s revenue growth slowed to 36 percent YoY in the fourth quarter from almost 42 percent in the third quarter. Google saw enterprise momentum in the fourth quarter, but margins in its cloud business continue to be negative, it said.
AWS’ revenue growth was down to 20 percent from 28 percent in Q3, primarily driven by customers focused on optimizing existing workloads. Meanwhile, Azure and its other cloud services reported 31 percent growth YoY in Q4, down from 35 percent. Azure’s commercial bookings growth rate is its lowest in five years, ISG said.
India demand
“The US and Europe markets are seeing much bigger dips in spending. But India, Asian countries and other emerging markets are saving them. CEOs of these big tech firms will continue to invest more in India,” Vasu said, referring to the CEOs of companies like Microsoft, Google and Amazon.
Both Google and Microsoft CEOs, Sundar Pichai and Satya Nadella visited India in the past few months. Nadella, during his visit in January, emphasised the importance of the cloud and Artificial Intelligence (AI) among the six imperatives he believes will drive tech-led economic growth in India.
“Cloud is 70-80 percent energy efficient on workload. You hedge against the demand cycle, you consume it only when you need it. We are investing in 60-plus regions, 200 plus data centres worldwide. In India alone, we are expanding and setting up our fourth region in Hyderabad. We want to make the cloud available everywhere,” Nadella said.
Revenue growth too continued to taper for these companies over the quarters. Infrastructure-as-a-service (IaaS), which includes hyper scalers, consequently reported the lowest annual growth ever at 8 percent.
