What AWS’ Growth Slowdown Means for the Cloud Industry

David Friend
David Friend
President, CEO & Co-founder

Amazon’s second quarter earnings left something to be desired. The company’s report detailed declines in stock price, revenue growth rate, and, alarmingly, a slow-down in the growth of Amazon Web Services. Long the tech giant’s reliable cash cow, AWS’ growth has fallen 4% this quarter, from 41% to 37%.

Perhaps you saw last week’s story in Forbes by Peter Cohan entitled “This is Why Investors Should Worry About Amazon’s Future.” Peter and I had a terrific conversation and, of course, not everything we spoke about makes it into the story. Here are some of my thoughts I shared with Peter, not only about how Amazon’s future impacts investors and customers, but what’s caused this recent slip and what can it tell us about the state of the cloud industry?

The Rise of “Multi-Cloud”

Let’s get one thing out of the way early: Amazon is fine. They are doing spectacularly well and are exceedingly well-run. It’s unrealistic to think that anything is “broken” at Amazon and that their strategy or execution is flawed in any serious way. However, they face inevitable headwinds as the industry matures, most notably from cloud vendors who specialize in pieces of what AWS offers. This “multi-cloud” approach is stratifying the industry and allowing customers to choose the best services to suit their specific needs.

There are several things driving the move to multi-cloud. First, customers are wary of having all their eggs in one basket. Amazon’s pricing and policies promote “vendor lock-in” and customers are discovering how little leverage they have with Amazon. An example is the fees that Amazon charges for taking data out of Amazon storage. It’s free to put data in, but they charge hefty fees to take data out. Hence it can be prohibitively expensive to leave Amazon.

Amazon would like 100% of your cloud infrastructure—their strength comes from offering everything you could want in one integrated service. It’s like going to Walmart for one-stop shopping with everything you need under one roof. This is great for developers who don’t want to deal with the complexities of multi-cloud, however it also subjects them to Amazon’s oppressive pricing structure and the minimal freedoms of vendor lock-in.

Second, Amazon is competing with some of their customers, notably in retail and entertainment. Amazon’s utter decimation the brick-and-mortar shopping landscape is well documented, but the company’s energization of Amazon Studios and Prime Video have some studios worried. One Hollywood executive that I met at a media trade show told me, “They are competing with us by making their own movies and TV shows. Why would I want to give them even one nickel?” Amazon is so massive it has its hands in nearly every industry, and businesses are wary of giving their data (and money) to their competition.

Third, AWS has over 100 cloud services ranging from storage to AI. You can’t be the best at everything, so dozens of specialized cloud companies have sprung up to compete with AWS ranging from Wasabi in cloud storage to Packet in bare metal compute, and Stackpath in content delivery. This allows customers to get the best cloud experience for their needs while avoiding the trappings of vendor lock-in.

When you break down AWS into specific services, they are losing ground to specialized competitors who do a better job at storage, AI, disaster recovery, and many other specific services. With the growing acceptance of multi-cloud strategies (and, ironically, the adoption of Amazon’s APIs as de facto standards), customer may move some, but not all, their cloud services to AWS.

The rise of “hybrid-cloud”, i.e., keeping some IT facilities in-house while moving others to the cloud. Not everything needs to be in the cloud and some customers have decided to move bits of their IT infrastructure to the cloud, but not all of it.

Is the overall growth in the industry slowing down?

The cloud is still growing at a torrid pace, but the base is so large now that it’s inevitable that the growth rates will slowly decline. While percentage growth may be slowing slightly according to statistics I have seen, that doesn’t imply that most of the world’s data storage won’t eventually move to the cloud. In the early days of electrification, most companies generated their own electricity. Not so today, obviously, but similarly it won’t make sense for most companies to run their own data centers.

David Friend
Written By

David Friend

President, CEO & Co-founder