AWS faces cost-sensitive customers at Reinvent as economic anxiety mounts

Amazon Web Services has been the biggest growth engine for its parent company for much of the past decade, acquiring business from some of the largest technology providers in the world.

But as companies face the most terrifying economic environment since the 2008 financial crisis, the massive checks they write to AWS for their tech infrastructure are getting more attention.

Peter Kern, CEO of online travel company Expedia group, sees the cloud as an area where his company can reduce its fixed costs. In recent years, Expedia has moved significant portions of its business from on-premises data centers to AWS.

“We haven’t fully optimized the cloud,” Kern said during the company’s earnings call last month. “We’ve moved a lot of technology to the cloud, but we still have a lot of work to do.”

US stocks are about to end their worst year since 2008. Central bankers have continued to raise interest rates to cope with rising prices, leaving consumers and businesses skittish about the economic downturn. Executives are on sluggish mode to appease Wall Street and ensure they are able to weather a potential recession.

The National Football League, which uses AWS to produce statistics and schedules, is making conservative plans around costs, said Jennifer Langton, the NFL’s senior vice president of health and innovation.

“We’re not recession proof,” Langton told CNBC this week during an interview at AWS’ annual Reinvent customer conference in Las Vegas. The league is negotiating with AWS the terms of a renewed multi-year agreement, and there are some areas its organization wants to prioritize, she said.

Amazon knows that customers face challenges. In some cases, Amazon cloud employees are reaching out to customers to see how it can help optimize spend, said David Brown, AWS vice president responsible for core EC2 computing service. At other times, customers contact AWS, he said.

AWS is coming off its slowest period of growth since at least 2014, the year Amazon began reporting on the group’s finances. It also missed analysts’ estimates. Still, the division posted 27.5% growth, faster than Amazon’s overall growth of 15%. And it generated $5.4 billion in operating income, accounting for more than 100% of its parent company’s profits.

With such a hefty cash balance, AWS can afford to accommodate customers at short notice if it means more business in the future. The company did the same during the 2020 pandemic, when Amazon emailed some users offering financial support.

AWS isn’t the only major cloud provider facing customer budget constraints. In the third quarter, from Microsoft Azure adoption growth slowed as the company helped customers optimize existing workloads, CFO Amy Hood said in October. Amazon is the market leader in cloud computing, with an estimated 39% share.

“If you want to tighten your belt, the cloud is the place to do it,” said Adam Selipsky, CEO of AWS, during his keynote presentation to more than 50,000 people on Tuesday. Selipsky said moving IT tasks to the cloud could help organizations on a budget save money, citing customers Agco and Carrier worldwide.

Not everyone agrees. Last year, investors Sarah Wang and Martìn Casado of venture capital firm Andreessen Horowitz published an analysis showing that a company could cut its computing costs by half or more by moving workloads from the cloud back to on-premises data centers.

Amazon tries to give customers options to cut costs. It offers Graviton computer instances based on energy-efficient Arm-based chips, a lower cost alternative to instances using standard amd and Intel processors.

“Customers of all sizes have adopted Graviton and are achieving up to 40% better price performance simply by moving their workloads to Graviton instances,” said Selipsky. He said AT&T‘s DirecTV unit was able to eliminate 20% of computing costs by using current-generation Graviton chips.

Selipsky told CNBC’s Jon Fortt in an interview that AWS teams work with customers trying to become more efficient.

“We’re seeing some customers that are stretching a bit right now,” Selipsky said. An example is software maker for data analysis Palantirwhich last month said third-quarter operating income was higher than expected, primarily due to cloud and deployment efficiencies.

Other companies are following the trend. NetApp and VMware have acquired startups to help companies streamline their cloud spending. Various companies promoted their cost-saving options on the Reinvent exhibition floor.

Zesty, which announced a $75 million funding round in September, added Sainsbury and Silicon Laboratories to its client list in the current quarter. The company’s technology can automatically adjust the amount of storage a company uses to avoid waste.

CEO Maxim Melamedov said Zesty picked up a ton of new leads at its Reivent booth, where the startup handed out candy, socks and stuffed animals and gave attendees the chance to win AirPods.

“Some of my boys lost their voices,” Melamedov said. “We are constantly on our feet with 15 people. We are constantly talking.”

WATCH: AWS CEO Adam Selipsky on the impact of slowing economy, cloud consumption

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