Led by Amazon Web Services (AWS), the cloud infrastructure market share leader, cost revisions by large companies are beginning to have a significant impact on the revenue growth rate of cloud providers.
Snap, the company behind the photo-and-video sharing app Snapchat, is reassessing its spending on cloud services as part of an effort to cut costs as it struggles with sluggish revenue growth.
Derek Andersen, the company’s Chief Financial Officer (CFO), mentioned at a business briefing for investors held on February 16 that efforts were made to reduce infrastructure costs, which account for the largest share of expenditures next to personnel costs.
For the cloud service you are using, see “Reviewed and updated contract details for lower prices and better use of partnerships with providers”It revealed that.
Snap went public on the New York Stock Exchange (NYSE) in 2017. From the information disclosed in the application documents submitted at that time, it is clear that the company has entered into cloud service agreements with Google Cloud and Amazon Web Services (AWS).
At the aforementioned investor briefing, several Snap executives touched on these deals,Recently signed a five-year, $2 billion long-term deal with Google Cloudwhat you did andThe total amount of contracts with AWS by the end of December 2021 reached a scale of 1 billion dollarsIt revealed that.
CFO Andersen declined to say exactly how big the company’s cloud cost-cutting efforts would be.Presents a chart that plots changes in infrastructure costs per daily active user. It turns out that the price of $ 2.78 two years ago has been compressed to $ 2.31 today.
He explained:
“Our company has focused on efficient management of unit costs (acquisition and maintenance unit cost per user), such as product design with efficiency in mind, switching to cloud services (reducing various costs due to this), etc.”
We reached out to Google and AWS for an interview, but the former declined to comment. The latter did not respond to emails.
Over the past few years, cloud services have grown to become a major source of income for tech giants such as Google, Amazon, and Microsoft, and all companies have high hopes that cloud services will become a core business that will drive future earnings growth.
However, in the face of the stock market slump starting in the winter of 2021 and the imminent global economic recession, high-tech companies have shifted to a defensive management stance centered on cost reduction. The huge annual usage fees paid to cloud providers are one of them.
For example, AWS’s sales growth rate will drop by half in 2022 compared to the previous year (40% increase in 2021, 20% increase in 2022). Google Cloud’s growth rate slowed from 44% in 2021 to 32% in 2022, and Microsoft’s Azure also fell from 46% to 31%.
Below is a chart showing changes in quarterly sales growth rates (2021-2022) for the top three companies in the cloud infrastructure market.
Amazon’s cloud division (AWS) quarterly revenue growth trends.
Quarterly sales growth of Microsoft’s cloud division (Microsoft Azure).
Quarterly revenue growth of Google’s cloud division (Google Cloud).
Snap isn’t the only company driving down cloud costs. The same is true for Twitter, which was acquired by Tesla CEO Elon Musk, who concurrently serves as top management, and is promoting drastic cost reductions such as large-scale staff cuts.
According to two people familiar with Twitter’s inner workings,Musk’s aides are currently negotiating with the company’s cloud services providers, Google Cloud and AWS, to reconsider the terms of their contracts.(All of the witnesses were anonymized because they said they did not have the authority to answer media inquiries.)
According to the disclosure information shown in the last shareholder letter issued by Twitter before delisting (November 2022), cloud service usage fees account for most of the company’s cost of sales of $515 million.
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(Translation and editing: Chikara Kawamura)
Source: BusinessInsider
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