Amid Slower Customer Spending, What’s in Store for AWS in 2023?
Once untouchable, the cloud computing sector, led by AWS, is showing signs of weakness.
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Amazon, parent company of AWS, started 2023 with stock prices a far cry from its 52-week high of $171.40. On Jan. 4, the company was trading around $84, hovering a bit close to its 52-week low of $81.69.
As financial analyst firm Elliot Wave International noted this week, Amazon stood out as 2022’s second worst-performing tech stock, “erasing $600 billion in revenue and its entire pandemic gains to land at its lowest level since March 2019. … Amazon wasn’t supposed to end 2022 a comedown story; but rather a comeback one.”
That didn’t happen. Nor does it appear Amazon share prices will bounce back right away. In fact, Elliot Wave predicts Amazon stock will slide closer to the $80 mark in the first quarter of 2023.
The Motley Fool writer Joe Tenebruso sees a little more basis for optimism. Even though investors continue to focus on Amazon’s cautions that near-term growth for AWS could slow due to a recession, “any reacceleration in AWS’s growth rates could ignite a powerful rally in its stock price. And based on the rising long-term demand for cloud services, it’s likely only a matter of time before this occurs,” Tenebruso notes.
Late last year, reports surfaced that AWS managers had been told to stop hiring and to stack-rank their team members to force out the lowest performers. On top of that, Amazon CEO Andy Jassy told employees in a November memo to expect “more role reductions … early in 2023.”
So far, AWS has managed to avoid the tranches of job losses that other Amazon divisions have undergone. But that could change as AWS buys fewer memory chips (a key growth or slowdown indicator) and as end users better control their cloud spending (perhaps to the company’s chagrin).
Over at TheLayoff.com, AWS staff aren’t feeling too optimistic about jobs.
“I don’t think we’re anywhere near over,” wrote one in late December, speculating about another wave of layoffs.
“It’ll probably continue in January,” responded another.
As of Jan. 4, however, AWS yet to announce layoffs.
AWS Marketplace (and Amazon Partner Network overall) turned 10 years old in 2022. Marketplace has proven itself an integral part of AWS’ strategy for expanding end user access to cloud platforms and services. That will not change in 2023. In fact, one expert predicts even more ISVs, system integrators and managed service providers will join AWS Marketplace this year. One appealing reason is that they’ll be able to offer various payment methods to buyers.
This is also why channel partners need to tread with care.
While sales pipelines will accelerate because of simplified purchase cycles and the elimination of multiple contracting processes, partners will sacrifice some profit on AWS Marketplace.
“AWS will take 2-15% of the commission on the transaction from every sale on the AWS Marketplace,” Bal Heroor, CEO of data analytics firm Mactores, a top AWS partner, told Channel Futures. “Small and medium partners will have a great way to accelerate their services. In contrast, large partners could opt out of the marketplace to avoid AWS commissions.”
In other words, year 11 could be a critical one for AWS Marketplace and channel partner participation.
The channel chief role at any company is notorious for high turnover. Depending on which analyst you ask, a channel chief lasts in the same job for an average of 18 months to 4.2 years. Of course, the longevity hinges on a variety of factors including executive support, company strategy, channel program leadership teams, personal ability to handle stress and even qualities such as likability.
Over at AWS, Ruba Borno has served at the channel helm since December 2021. By all accounts, she is highly liked and a strong leader. But even she is not immune from corporate pressures. In 2023, Borno “has a massive challenge in front of her to align field sales and partner organizations as a single team,” Mactores’ Heroor opined to us.
Borno’s been tackling that initiative since 2022, but “her effort has yet to yield any outcome fruit,” Heroor said.
Keep an eye on Borno’s progress on this front in 2023. Other cloud providers, not just AWS, are bringing together field and partner groups, too, and this is no easy feat. Borno is likely up against common obstacles such as pushback over compensation fears and lack of desire among insider staff and partners to cooperate, if she hasn’t encountered any of that already.
Even so, corporate executives and investors are not patient people. Now that Borno has had a full year to start executing on a single-team vision, 2023 is likely the year leaders will expect results.
And if those don’t emerge as quickly as hoped, Mactores’ Heroor warns AWS against resorting to typical corporate responses — like booting a smart, resourceful, respected channel chief.
“Taking [Borno] off the channel leadership would be very harmful to AWS to remain competitive against Microsoft, which has excellent channel partnership relationships,” he said.
And as Microsoft Azure gains significant traction against AWS, AWS will want to do everything possible to blunt its biggest competitor’s growth.
Despite the flurry of announcements at re:Invent in December, Channel Futures spoke with sources who lamented the absence of actual news. Other observers made the same note. As TechCrunch put it, re:Invent 2022 featured “less relevant news to write about.”
Indeed, for the first time in its decade-old history, AWS re:Invent talked up incremental releases rather than unique new services. The unspoken question circulating throughout the industry? Has cloud computing innovation — at least at AWS — hit a ceiling?
“It’s gotten to the point, it seems, where the ecosystem has grown so enormous, and there are so many products, that [AWS] has decided to focus on making it easier to work with and between those products (or with external partner products) than creating stuff from scratch,” TechCrunch wrote.
As such, 2023 will prove a pivotal year for AWS to respond to, or correct, the perception that its innovation is slowing.
An AWS Strategic Collaboration Agreement calls for the cloud provider to work alongside the partner that’s signed the contract, pooling both money and resources. Together, both companies fund efforts to expand services and/or business groups, sales teams and reach, technology development and more. As such, an SCA can give a channel partner a financial infusion they might not otherwise receive.
For 2023, Innovative Solutions stands out as the first company to announce an SCA with AWS. Here’s what the cloud managed service provider intends to do because of the agreement: “Innovative Solutions and AWS will tightly align their sales, marketing and delivery teams to effectively accelerate the adoption of cloud services in the small- and medium-sized business (SMB) and startup industry segments with a key focus on software, fintech, life sciences and retail industries.”
That’s the word via a Jan. 3 press release, in which Innovative added that it will focus on cloud managed services that take customers “through the full digital transformation life cycle; migration, modernization, data strategy, and machine learning.”
The AWS SCA will provide financial support for Innovative, a Premier Tier Services partner, to expand its migration and modernization practice, its managed services portfolio, and build new practices in data analytics and ML.
Despite questions around AWS’ innovation, it’s reasonable to expect the world’s largest cloud computing provider to continue signing SCAs with a range of channel partners. Last year, AWS crafted SCAs with companies including Presidio, IBM and TD Synnex.
To the point we made in the introduction about customers at last controlling cloud costs, Innovative Solutions includes CloudCheckr for all of its managed cloud services clients. This is an important trend Channel Futures expects more MSPs to act on in 2023, especially with regard to AWS.
Again, given that AWS holds the most market share, organizations need to track this spending meticulously. With cloud computing, it’s far too easy to leave test buckets and sandbox environments running, consuming resources even though no one is working on or using them. In many cases, multiple, disparate containers can be condensed, or services turned off during non-working hours. (Companies turn off the lights to save electricity after hours — why not cloud computing too?)
Until now, though, many executives haven’t given much thought to the cloud technology in place within their organizations, and how much money it requires. As COVID-19 started to spread almost three years ago, businesses essentially wrote blank checks to cloud providers for remote-worker support.
But those high-flying times for cloud computing companies appear to be ending. AWS leaders themselves have spoken in recent earnings calls about organizations pulling back on spending, and that awareness and activity will continue throughout 2023 — to the detriment of AWS and the boon of channel partners and their customers.
Now that AWS has secured a spot on the Joint Warfighting Cloud Capability (JWCC) contract, and signed a $724 million contract with the Navy, the question becomes when the cloud provider will profit from those deals.
None of the JWCC’s cloud providers — AWS, Microsoft Azure, Google Cloud and Oracle Cloud — is getting a cut of the $9 billion contract right away. Instead, they’ll see revenue from individual task orders — and the companies will compete for those. The Navy contract, meanwhile, gives the Department of the Navy clearance to buy AWS tools to modernize enterprise architecture.
Investors and stakeholders will be watching AWS’ progress on government contracts in 2023.
Now that AWS has secured a spot on the Joint Warfighting Cloud Capability (JWCC) contract, and signed a $724 million contract with the Navy, the question becomes when the cloud provider will profit from those deals.
None of the JWCC’s cloud providers — AWS, Microsoft Azure, Google Cloud and Oracle Cloud — is getting a cut of the $9 billion contract right away. Instead, they’ll see revenue from individual task orders — and the companies will compete for those. The Navy contract, meanwhile, gives the Department of the Navy clearance to buy AWS tools to modernize enterprise architecture.
Investors and stakeholders will be watching AWS’ progress on government contracts in 2023.
The once-untouchable cloud computing sector is showing signs of weakness. And now questions are starting to surround Amazon Web Services (AWS) in 2023 as the bellwether for the category begins to lag.
As the largest cloud provider with the most revenue and market share, AWS is indeed the company to watch as cracks begin to show in the cloud computing world. In fact, speculation is running rampant over how long AWS can sustain its $20-billion-plus per-quarter revenue. To that point, “it seems likely that Amazon has overbuilt its cloud business,” writes Timothy Green over at The Motley Fool. “Operating margin for AWS was down about 4 percentage points year over year in the third quarter, which suggests that the company expanded too quickly.”
Investors, Green added, “should brace themselves for deteriorating AWS profitability” when Amazon reports its fourth-quarter earnings.
Indeed, from financial pundits to cloud executives themselves, concern is growing about cloud customers pulling back on spending. That’s especially at market leader AWS in 2023. Over the past quarter or so, during earnings calls, executives have noted customers paying greater attention to cloud computing expenses. They’re telling analysts that they see organizations taking measures to curb costs.
In any other industry, such spending consciousness would seem like a no-brainer. With cloud computing, though, there seems to be some kind of disconnect where providers act shocked when end users finally pay attention to outlay.
In summary, it’s clear that the excesses of COVID-19-era cloud provisioning are slowing at last. Providers are hitting unexpected walls. They’re reacting with hiring freezes and employee layoffs. AWS itself implemented a hiring freeze last year which it has yet to lift. And there are a lot of questions surrounding the possibility of layoffs at AWS in 2023.
In the slideshow above, we examine what could lie in store for AWS in 2023 across several areas. We cover ground from Amazon’s stock price to AWS’ channel activity.
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