Welcome to the first edition of Mostly Cloudy! Hit “File” and then “Print” if you want to save a copy, or maybe just forward it to a lot of people.
This Week in Cloud: Dollars and Sense
Earnings season feels like it should provide a definitive update on a company or industry’s health, but the quarterly ritual always seems to raise more questions than it answers.
Cloud computing continues to be a great business; thanks to years of investment in infrastructure and tools, it’s getting easier and easier to run a business on the cloud while the majority of enterprise computing workloads remain locked up in aging data centers. AWS, which has enjoyed the top position in cloud infrastructure more or less since Day One, posted a 37 percent increase in revenue Thursday with $8.4 billion in sales during the second quarter, putting it on a $33 billion yearly run rate.
Microsoft still refuses to reveal a specific number for Azure revenue, which means that number is not as good as it would like you to think. Still, Azure is well ahead of smaller cloud rivals like Google by almost all estimations, and Microsoft did disclose last week that Azure revenue increased by 64 percent.
But financial analysts and hastily filed earnings stories noted a trend: cloud infrastructure revenue growth is slowing at both companies.
So what does that mean? Are the cloud leaders losing market share? Are the days of soaring cloud growth over? Is the economy slowing?
It’s hard to know for sure, thanks to the opacity of corporate earnings reports and public statements. On Amazon’s conference call, CFO Brian Olsavsky offered this in response (via Seeking Alpha) to a question about the slower growth at AWS, and I guess it’s technically English (emphasis mine):
On a percentage growth basis, we are lapping some very strong growth in the first half of last year. We were growing about 50% in the first half of last year. There's some particular unique customer volumes that were flowing through that some customers have really high usage tied to their businesses.
Tough comps are tough. But there are a few things we do know.
Cloud growth rates will go down over time, because it’s a law. More and more companies are signing multiyear deals with their cloud providers, which often lock in pricing discounts at the outset in exchange for minimum spending commitments over time. And overall business spending fell 0.6% in the second quarter, with USA Today noting on Friday: “Business spending on new equipment, software and buildings has slowed markedly from the robust pace in early 2018, when tax incentives may have encouraged more projects.”
One important thing to remember: for all the hype around cloud computing, most companies are still running their businesses on servers they bought from Dell or HP, in data centers they lease, using packaged, on-premises software updated maybe once a year. There will always be companies that want to build their own IT infrastructure (with various levels of justification) but there are more companies that no longer see the point.
The 2008 recession was one of the best things to ever happen to cloud computing, as startups formed in its wake with meager resources were willing to bet on the early versions of the cloud that big companies wouldn’t touch. The next recession will hurt a bit more, but right now just about every business around the world is developing or refining a cloud computing strategy around the mature tools provided by four huge tech companies and dozens of smaller infrastructure vendors.
There’s still a long way to go.
And Now, A Word…
Hello to all the distinguished members of the tech PR community that reached out this week! Thank you for supporting fledgling independent tech editorial ventures, but I have one simple and likely futile request.
Please do not pitch me story ideas or “conversations” with executives looking to hit their thought leadership OKRs for the year.
Think of Mostly Cloudy like my cloud computing blog. (Remember blogs?) While I’m more than happy to correct anything I screw up and will print reader feedback from time to time, when I want to talk to the people and companies who are driving this huge shift in technology history, I’ll find you.
AROUND THE CLOUD
Google Cloud’s run rate is now over $8B (Techcrunch)
Google is working on the second reboot of Google Cloud in the last four years, now under former Oracle executive Thomas Kurian, and it provided a limited update on its cloud progress during its earnings conference call Thursday. Google CEO Sundar Pichai disclosed that Google Cloud is on pace to record $8 billion in revenue a year, but because that number also includes sales of the G Suite office productivity software, it’s not particularly helpful in gauging the progress of Google’s infrastructure services.
Exclusive: Inside the effort to turn Trump against Amazon's bid for a $10 billion contract (CNN)
How much money do we think Oracle has now spent trying to derail a cloud contract it was never going to get? Best line from that report, on how you try to get the President to do something for you: “With images of dollar signs, arrows, and a heart linking the various figures, the chart leaves the overall impression of corruption and conflicted interests.”
OpenAI forms exclusive computing partnership with Microsoft to build new Azure AI supercomputing technologies (Microsoft):
OpenAI CEO Sam Altman (left) and Microsoft CEO Satya Nadella (Microsoft Photo)
Microsoft has talked about investments in custom hardware and silicon for its cloud business before, but Monday’s announcement makes clear that it will accelerate those efforts over the next few years. AI research requires a much different approach to infrastructure than the vast majority of cloud customers need, and all three major cloud vendors are investing heavily in unique infrastructure to serve what they all believe will be a huge component of their business down the road.
Microsoft's LinkedIn unit commits to starting to move its services to Azure (ZDNet):
This is a good reminder that cloud migrations take a lot of time, even if you work for the company that runs the cloud provider. And maybe everybody else knew this, but the detail Mary Jo Foley chose to leave us with caught me by surprise: Office 365 and Xbox Live don’t actually run on Azure, they run in their own data centers.
The Business Executive's Guide to Kubernetes (Jessie Frazelle):
Jessie is a badass infrastructure computing nerd, and her take on whether your company really needs Kubernetes is worth a read if you’re thinking about taking the plunge. Easily one of the most discussed infrastructure technologies over the last few years, Kubernetes solves a lot of complicated problems (especially for multicloud) but depending on the computing needs of your business it might cause more pain than it relieves.
Salesforce Enters China Amid Trade War, With Alibaba’s Help (Bloomberg)
The view from the “Ohana Floor” at Salesforce Tower in San Francisco (Salesforce Photo)
Another top enterprise tech brand has decided it can’t resist the growth potential of the Chinese business market despite, well, everything else that follows after U.S. tech companies decide they want to operate in China. Alibaba will open a lot of doors for Salesforce, but it seems unlikely they’ll consider themselves part of the same ohana.
Inside the Government’s ‘Quantum Computing Summer School’ (Motherboard)
Quantum computing feels like one of those things we’ll be talking about as being right around the corner for the next 20 years. Still, at some point the hardware and software required to take advantage of this entirely new way of computing will start to come together. Some of the best students in computer science are putting long hours into understanding how best to harness this technology, which will upend decades of conventional wisdom about how computers work.
Amazon won't spin off AWS, and that's too bad for AWS (Cloud Irregular)
This is a fun thought exercise conducted every year at AWS re:Invent over drinks in Las Vegas: when will Amazon spin off AWS as a separate company? There are lots of arguments on all sides of the debate, and Forrest Brazeal spoke up this week on behalf of those who think growing disdain for Amazon’s labor relations practices and rapacious pursuit of all retail business will weigh on the cloud computing unit over time.
LIFT AND SHIFT
Andy Jassy's Chief Of Staff Replaces Terry Wise As AWS Channel Chief (CRN)
Channel partners are an important part of selling the cloud to big business, and AWS has chosen Doug Yeum to lead this organization. Terry Wise had been running the channel business for over a decade, helping build a bookseller into a global enterprise tech vendor, and he’ll now become vice president of worldwide partners and U.S. Western region sales for AWS, the company confirmed to CRN. Fun fact: Yeum was AWS CEO Andy Jassy’s chief of staff, a role Jassy occupied for Amazon CEO Jeff Bezos before he was tapped to lead the nascent cloud business.
SEEDING THE CLOUD
CircleCI raises $56 million to continuously test software builds for bugs (Venturebeat):
The days of shipping software updates on a quarterly schedule are long over, and concepts like continuous integration and delivery are now table stakes for modern software development organizations. CircleCI has now raised $115.5 million to develop tools that automate how companies incorporate new software builds into their products.
Arrcus snags $30M Series B as it tries to disrupt networking biz (Techcrunch):
It’s taken a little longer for software to digest the networking business in the same way it has transformed nearly everything else, but it’s starting to happen. Arrcus’ ArcOS was designed as a Linux-based networking operating system for white-box networking gear that is (theoretically) more flexible than the products offered by networking giants like Cisco and Juniper.