While generative AI dominated the talking points among the big three cloud hyperscalers--Microsoft Azure, AWS and Google Cloud--there was a term that remained a close second: Optimization.
All three talked about cloud optimization as they have for the past year. CEOs are loathe to say things like cost cutting in the context of cloud, but there is certainly an ongoing tweaking of spending.
My handy conference call analytics--a word count of terms--puts optimization right in the mix as an ongoing theme. Here's what the big three are saying about customers optimizing their cloud spending through the September quarter.
Azure
Microsoft CFO Amy Hood said on the company's first quarter earnings call that "in Azure, as expected the optimization trends were similar to Q4. Higher-than-expected AI consumption contributed to revenue growth in Azure."
Makes you wonder when customers will start optimizing AI consumption too, eh?
For Microsoft's fiscal second half is assuming optimization and new workload trends will continue and Azure will see stable growth due to AI. Hood said:
"We've been very consistent that the optimization trends have been consistent for us through a couple of quarters now. Customers are going to continue to do that. It's an important part of running workloads that is not new. There obviously were some quarters where it was more accelerated, but that is a pattern that is and has been a fundamental part of having customers, both make new room for new workload adoption and continue to build new capabilities."
Optimization was mentioned 9 times on Microsoft's earnings call.
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AWS
Amazon CEO Andy Jassy hit a similar theme with optimization on the company's third quarter earnings call. His message was similar to Microsoft's: Optimization is making room for new workloads. Jassy said:
"AWS' year-over-year growth rate continued to stabilize in Q3. And while we still saw elevated cost optimization relative to a year ago, it's continued to attenuate as more companies transition to deploying net new workloads."
According to Jassy, optimization remains a headwind, but the rate of cutting has slowed. He added that AWS is "encouraged by the strength of our customer pipeline."
Other optimization takeaways from Jassy include:
- Customers aren't shutting down workloads en masse.
- Many customers are shifting EC2 instances to Graviton processors over AMD and Intel to save money.
- Customers are also moving from hourly on-demand rates to workloads with 1- to 3-year commitments to save money.
- Optimization with help from AWS is a long-term customer win.
Jassy added:
"My perspective is that in 2024, I think a lot of the relatively low-hanging fruit on optimization has happened in 2023. It's not to say there won't be any more optimization. It's just that there's more low-hanging fruit when you have very large footprints and you've built a lot of applications on a platform."
Optimization was referenced 19 times on AWS' third quarter earnings call.
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Google Cloud
Although Google Cloud's revenue growth of 22% disappointed Wall Street, it's worth noting that the company's conference call featured the word optimization only 3 times and only one comment referred directly to Google Cloud.
Alphabet CEO Sundar Pichai said:
"We had definitely started seeing customers looking to optimize spend. We leaned into it to help customers given some of the challenges they were facing. And so that was a factor. But we are definitely seeing a lot of interest in AI. There are many, many projects underway now, just on Vertex alone, the number of projects grew over 7x. And so, we see signs of stabilization, and I'm optimistic about what's ahead."
What gives? Optimization is probably less of a theme for Google Cloud since it doesn't have the installed base that AWS and Azure enjoy.
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My take
Frankly, I hope this cloud cost optimization theme remains forever. While optimization became a big theme a year ago, the reality is that enterprise buyers should always be optimizing.
With any luck enterprise buyers will be optimizing those pricey AI workloads real soon.
If enterprises don't optimize continually, they lose control of costs and more importantly can't hold cloud providers accountable. A continuous threat of optimization will keep both buyers and sellers of cloud compute on their collective toes.
