Is the Cloud Recession-Proof?
interconnected.blog
interconnected.blog
Many businesses associated with outdoor activities, sports, travel etc etc will be seeing less traffic at the moment. Many business are pretty much closed. This will then severely impact other businesses which sell to those businesses, and so on, all the way up the chain to advertising and cloud providers.
Comcast, I was told, spends over $1B/year on AWS but I cannot find any public references to back it up.
[1] https://www.cnbc.com/2019/04/22/apple-spends-more-than-30-mi...
0.3% of monthly revenue from a single customer's reduced spending only a couple months in to a multi-year recession is pretty alarming.
Makes me wonder if OP's company is particularly exposed to retail, travel, or another sector severely impacted by the first order effects of the virus.
In my reality, a large part of my programmers' effort is spent battling various "capacity exceeded" AWS errors.
$120m/year for apparently unnecessary IT capacity would be hard to hide even in government contracts...
For an engineering team of ~1000, just the build servers will cost about $1-5m a month (depending on what's being done there).
Let's say we pair engineers up just to make my math a little easier here. One engineer's allotment goes to compute resources, another goes to storage.
At the low end, that's a 32 core/128GB RAM build server with 10TB of storage per pair.
At the high end, depending which way you spec that out, that's 96 core/385GB RAM with 50TB per pair.
What the hell are you guys building?!
$1M/mo will rent you about 300 c5d.24xlarge servers, at on-demand rates (and of course no medium or large enterprise is paying the higher on-demand rates). I'm pretty sure we're running somewhere on the order of 10 build servers, and they're maybe 4xlarge or 8xlarge boxes.
Not impossible at all to believe they could cut $10M/month from could spend at a big enough company just by trying.
The same mechanic that makes the cloud attractive in the first place is what will bring the hammer down in a serious recession. Companies will turn every stone to use less capacity and save money, and they will easily be able to do it.
The main cost is the up-front capital. This capital has a cost (aka, the cost of capital in finance parlance), which either come from debt, or financed by equity, or in opportunity cost.
Therefore, shutting the servers down will not decrease that cost of capital, and so continue to cost the business that cannot make use of the servers in a recession.
The great thing about cloud servers is that it's pay per use - so there's no cost of capital. And in bad times, the expense can be eliminated, and directed else where that's more needed.
The typical customer I see who's moving from on-prem to cloud has a clear trigger/deadline in the form of hardware reaching EOL or licenses being up for renewal, and these aren't going away with COVID.
CTOs/CIOs call the shots when times are good, CFOs when times get lean.
The Cloud is still growing as many businesses are still moving towards it. If the natural growth of the Cloud is bigger than how much the economy shrinks then the growth will still be positive or flat.
I work for a tech company in this situation. It has grown a lot the past years and was expected a lot of growth in 2020. Now the expectations are more close to a flat growth with heavy losses in some quarters and growth in others. It is a similar case to the Cannabis industry. It may shrink from the reduction in economy, but still grow to the end of the year as it is just starting its growth path.
1) The basket of customers who may do a big Cloud migration may shy away from big CAPEX projects (unless it's a very low hanging fruit that saves money).
2) It's not completely obvious whether cloud saves money, it really depends on the customer case by case.
3) The big sales pitch for cloud migration was so it can add features faster. Adding new features isn't on top of people's minds right now
4) Existing cloud customer will find ways to optimize their cloud spend.
I was thinking that we were going to start having blackouts due to everyone being at home during the day running their A/C, until I realized that countless businesses are now not running their A/C since no one is in the office/restaurant/mall.
It is like electricity or water. Yes unnecessary spending will be curbed, but surge in other fronts from the system will compensate that.
Overall, it is hard to imagine that Cloud business will not be hurt, but it will have some resilience to battle it.
Google is getting more traffic than ever I'm sure with people stuck at home and looking to buy or do things online. All of which are advertising their services in Google.
Based on what, that sounds like something you have just pulled out of the air.
On a small enough scale, it doesn't matter so much. When you're paying millions a month, it matters a huge deal.
Even on a micro scale:
* Vultr, DigitalOcean are 2-4x cheaper than AWS (and they are established companies with a track record of reliability, as well as 20+ locations around the world)
* Even AWS offers "Lightsail" which are significantly discounted VPSes with included bandwidth that costs more than the Lightsail price! Their ToS prevents you from using it as proxies... lol.
* Want to save money on S3? Get some colo space, buy some Enterprise HDDs and set it up on RAID, and your opex is going to be 5-10% the cost of S3. Or SSDs if your access patterns require it. Set up some SMART-based email alerts and an offsite backup procedure, and it's absolutely reliable enough for the vast majority of business use cases. P.S. even S3 silently loses files...
* Using CloudFront? It might be easy and integrated, but it's absolutely not going to be the cheapest or best value. It's really marked up, heavily. Spend a few hours talking to leading competitors and you'll get a quote for half your CloudFront bill, if not less; often for a better CDN.
* Trying AWS Rekognition, or other ML-as-a-service products? Hire some data science intern and they can copy/paste the leading open source project from GitHub, train it on your data, and you'll quite possibly get better results than generic ML solutions... for as low as 1/100th the cost. (Real example).
Yes, you gotta maintain it, but I find that people generally think maintenance is a bigger monster than it actually is. AWS has huge profit margins: where do you think it comes from? Hint: it makes it from you.
If you’re spending $100k per year on cloud services, then in 10 years, you’ll have spent $1 million. How many software licenses and hardware can you buy for that?
Granted, some services are only online, so you’re at the mercy of your provider on what they want to charge.
What?
Chapter 11, and voilà, AWS needs to stay in line with countless creditors and get a tiny fraction of what the customer owes them.
Fortunately I've not had to work with salesforce before, but if Id just signed a big contract with them on the expectation of a growing business and then they were inflexible and enforced the contract to the letter while the rest of the business suffered then it'd leave a bit of a sour taste. Having said that, I guess if you've got your shit together you'd write clauses in to the contract to protect you from stuff like that e.g. early termination with a bit of a fee.
I remember a blog post, I think from Tim Bray, about 15 years ago or so arguing that the people in IT who had great careers went into government during recessions or down periods and out of government during boom times to work on the things that they had specified during the down period.
So maybe Government is recession proof. Seems about right.
Given how power users are likely to be "Essential", and how businesses might scale back but otherwise avoid major changes, those demographics will only pull out past a different inflection point. It will take things being dire on a wide scale; whole companies and industries failing. When that happens society as a whole can be seen as failing.
If we do ever get to the point that "cloud fails" we should really hope for a new new deal.
It's a genius sales strategy.
I'm a contractor and several of the companies I've worked with recently have almost hard-coded their services to expect certain things available to them on GCP or AWS that aren't as easily available on the other.
You can argue that they should use 12facter and real DevOps and portability and so on but that's just not what people are actually doing so they've locked themselves in and for companies that are struggling to pay their hosting bill already, saying "We need 3 months of 6 developers' time to move" isn't going to go down well.
I wonder how many people who think they have a large “cloud agnostic” infrastructure have actually sat down with project managers and come up with a project plan and cost analysis of a large migration.
I have witnessed how much it costs to do just a Workday migration.
If you've invested the effort and personnel in being able to move from some cloud provider to some other cluster/cloud solution, it probably already makes sense to just get your own servers and move yourself there, since you're basically capable of doing that (and your costs will be cut by a large factor).
I was saying it's pretty flexible within the constraints set up, and often companies have spare capacity they could significantly scale down to save money (for example a travel company during a pandemic has very few customers), so it is flexible in the most important way (cost).
That means cloud companies will see a significant reduction in resource usage and thus revenue if enough customers do this.
I dislike articles like this because nothing is "proof/immune" if the hurt/pain is strong enough.
I 100% believe that many cloud companies are recession resistant, but it really depends what market forces that recession is driven by.
If this was 2008 crash again, we'd say all real estate cloud companies were not recession proof.
For me, I know I buy way more alcohol now in grocery stores. But what about all the alcohol not spent in bars and restaurants??
it's about as recession proof as it is idiot proof. As long as people are around, I'm sure businesses will bounce back and overtime, things will begin to return to normal.
What should be clear is that anything denoted by "cloud" quite literally comes down to leveraging computing power provided by someone else in one arrangement or another.
Anyone providing or relying on a "cloud-based" service is directly part of a marketplace and it's innate dynamics which includes recessions and the complex fashion in which those play out.
While it's highly unlikely to see Amazon shutter AWS overnight because demand implodes entirely, I wouldn't be surprised to see changes in their pricing or offering to offset macro-economic effects in the long term.
The other side of the spectrum would be specific niches disappearing. For instance, small companies that leverage cloud infrastructure and resell hosting as an offering to small businesses. Many of them might find themselves out of business if their customer portfolio consisted of recession sensitive businesses as well.