Dive Brief:

• Technology and e-commerce company Amazon continued to see a slowdown in the growth of its Web Services cloud business, with enterprise customers continuing to pull back on their spending due to macroeconomic uncertainty, CFO Brian Olsavsky said Thursday during the company’s fourth quarter and full year 2022 earnings call.
• “By and large, what we're seeing is just an interest and a priority by our customers to get their spend down as they enter an economic downturn,” Olsavsky said in response to questions. “We're doing the same thing at Amazon, questioning our infrastructure expenses as well as everything else.”
• AWS sales rose by 20% year-over-year to reach $21.4 billion for the fourth quarter ending Dec. 31, 2022, according to its earnings results. The e-commerce firm has been seeing a deceleration in the sector since the third quarter, Olsavsky said.

Dive Insight:

More sluggish cloud spend comes as enterprises of all sizes “evaluated ways to optimize their cloud spending in response to the tough macroeconomic conditions,” Olsavsky said during the call.  

“As we look ahead, we expect these optimization efforts will continue to be a headwind to AWS growth in at least the next couple of quarters,” he said. A 20-year alum of the company, Olsavsky has served as the e-commerce firm’s CFO for seven years beginning in 2015, according to his LinkedIn profile.

Interest and adoption of the cloud spiked during the COVID-19 pandemic, when many businesses making the shift to remote work environments splurged on the technologies they needed to support a more digital workforce. As CFOs prepping for a possible recession take second looks at their technology spending, however, this trend has begun to change.

Enterprise spending on cloud infrastructure services hit $57 billion in Q3 of 2022, representing a 24% bump year-over-year, according to an October 2022 report by Synergy Research Group. That 24% increase is down from the 29% rise seen in the prior quarter, when enterprise spending reached $55 billion, according to a July Synergy report.

Olsavsky pointed to declining mortgage values, lower trading for cryptocurrencies, and shrinking advertising spend as factors that may be contributing to a decline in cloud spend for companies in those industries.

“There's ways to alter your cost and your bill in a short period of time,” he said in response to questions, noting companies can run calculations less often or make a switch to lower-cost products. “I think that's what we're seeing.”

Amazon remains the market leader within the cloud infrastructure space, capturing 34% of market share in the third quarter, according to Synergy, followed by Microsoft and Google. Combined, the three companies capture 66% of worldwide market share for cloud infrastructure services.

In the midst of a murky economic environment, the three cloud leaders were also among several high-profile companies throughout the technology space to announce sweeping layoffs in a bid to lower their own costs — Amazon announced staff reductions which would affect 18,000 jobs in late January, according to the Wall Street Journal. Microsoft also announced plans that month to slash its workforce by 10,000 employees or under 5% of its total workforce.

Meanwhile, Google parent Alphabet will be “meaningfully slowing the pace of hiring in 2023,” CFO Ruth Porat said Thursday during the company’s fourth quarter earnings call. The move comes after the company announced in late January that it would be cutting 12,000 jobs and refocusing on artificial intelligence, according to a report by Reuters.

“We will continue hiring in priority areas, with a particular focus on top engineering and technical talent, as well as on the global footprint of our talent,” Porat said.  

Amazon recorded a $640 million charge due to the layoffs, which primarily impacted its stores and device businesses as well as its human resources teams, Olsavsky said. The company reported revenue of $149.2 billion for the fourth quarter, a 12% increase year-over-year excluding impact from changes in foreign exchange rates, according to its earnings results.