Welcome to Mostly Cloudy! Today: how enterprise tech went from the hubris of the early pandemic to low-grade panic in 2023, the market for third-party Arm servers just got a big boost, and the generative AI hype shows no signs of slowing down.
Photo: Microsoft
Subtracting value
In April 2020, when much of the world was quarantined and worried about the lasting effects of the worst pandemic in a hundred years, one group of people was supremely confident about the future: enterprise tech executives.
“We’ve seen two years’ worth of digital transformation in two months,” said Microsoft CEO Satya Nadella in April 2020. “There is both immediate surge demand and systemic structural changes across all of our solution areas that will define the way we live and work going forward,” he said, as transcribed by Seeking Alpha.
There was definitely an immediate surge in demand for modern enterprise tech as businesses around the world overhauled their sales and distribution strategies to adjust to a locked-down world. But predictions of “systemic structural changes” led enterprise tech companies of all stripes to believe the market had broken through to a new normal, and as is now very clear, that didn’t happen.
This week Salesforce laid off thousands of employees (plans first reported by Joe Williams in November), acknowledging that it overhired during the pandemic on the assumption that a new normal for enterprise tech spending had arrived. It has not, and Salesforce was not the first, and will not be the last, enterprise tech company to reach that conclusion.
Instead, "the next two years are probably going to be the most challenging," Nadella said in an interview with CNBCTV18 this week, before somehow feeling confident enough to predict a “massive” rally after that point. This time Wall Street isn’t taking his word for it; UBS downgraded Microsoft’s stock this week citing concerns about the growth of its cloud business.
Everything is obvious in hindsight, of course. When Nadella made those comments in April 2020 he couldn’t have known that two years later Russia would invade Ukraine, upending a global economy that was still working its way through supply-chain disruptions.
But the merchants of “digital transformation” flew a little too close to the sun during the early days of the pandemic, believing themselves the lifeline that would forever keep the world afloat and determined to seize that opportunity before their competitors did. And instead of taking the fall themselves, they’re passing the ramifications of those decisions along to their employees.
That’s an old story in the business world, to be sure, but sending thousands of qualified tech professionals out onto the open market could have interesting ramifications for enterprise tech itself. Earlier this week The New York Times noted that with recent layoffs across the sector, big companies outside the tech industry are finding candidates available for jobs they’ve long struggled to fill.
Cloud-based enterprise tech thrived over the last decade because outside Silicon Valley, buying tech was so, so much easier than building it. It could take years to play out, but if enterprises are now able to hire the tech talent they need to reduce their reliance on cloud infrastructure and SaaS vendors, it might be time to reset expectations for this market.
Armed for the future
AWS’s successful introduction of its Arm-based Graviton processor gave cloud users enough confidence in the price-performance benefits of those instances to start reworking their applications. As talk of cloud “repatriation” starts to creep up more and more, one of the world’s largest server vendors is getting in on the action.
Supermicro will use Ampere’s Altra processors in a new line of servers for customers that still want to manage their own data centers, according to The Next Platform. Supermicro trails larger vendors like Dell and HPE in the server market, but HPE only introduced an Ampere-based server in the middle of last year, so the market for Arm servers is still underdeveloped.
Cloud infrastructure computing will still make a lot of sense for a lot of businesses, but the arrival of more and more “cloud” hardware for on-premsies data centers is starting to get interesting. Cloud computing isn’t just a rental market for servers; it’s also a new way of thinking around enterprise-class computing flexibility and on-demand performance that could be implemented closer to home, given the right products and the right expertise.
Around the enterprise
Is OpenAI worth $29 billion? Investors that believe its breakthroughs could be the future of tech certainly seem to think so, although products like ChatGPT seem far from enterprise ready.
Snowflake is also investing in AI, acquiring Myst AI’s forecasting platform for predicting changes in energy demand.
Shopify shared some real-world perspective on what it takes to migrate key business applications to new technologies, in its case moving its mobile app to React Native.
FinOps is having a moment: Chronosphere just raised $100 million from GV and others for its cloud cost-reduction software.
Thanks for reading — see you next week!