Have We Reached “Peak Cloud?”

Posted by on Oct 23, 2019 in Uncategorized | No Comments

Earlier this year analysts were falling over themselves to proclaim the end of accelerating cloud growth. AWS and Azure warned of slowing growth rates. It’s not that the market isn’t red hot, it’s just not as red hot as it once was. Half of all IT dollars went to #cloudcomputing in 2018, so adoption will slow as the other half of the market converts.

It’s hard to believe that cloud computing is nearing maturity. Modern cloud computing arrived with the launch of AWS in 2006, only 13 years ago. It seems unlikely that the $3.8 trillion IT industry has reached cloud midlife at this early stage. We’ll find out, in part, when @amazon announces its Q3 earnings on Friday.

@AWSCloud has continued to grow even as sales reached almost $8.4 billion in Q2, and it is more profitable than the company’s much larger retail business. But the annual growth for the cloud division in Q2 dipped below 40 percent for the first time, and the operating margin was down to 24 percent, versus 84 percent this time last year. Amazon attributed the smaller profit margin to spending heavily on sales and marketing. The company said its tech workforce is growing about twice as fast as the company’s overall headcount, which is up 13 percent.

Is it possible that cloud computing has reached midlife? After all, the IBM PC AT was launched in 1984. Thirteen years later Microsoft launched Windows 95 and PC sales began to skyrocket. Maybe cloud computing is waiting for its killer app. Artificial intelligence, machine learning, and Internet of Things are among the hottest cloud services. These are applications that would be very hard for customers to replicate on their own. Many organizations cannot afford to hire data scientists. But the cloud vendors make it easy to tap into their resources and add artificial intelligence to any application. When predictive analytics, recommendation engines, or other artificial intelligence use cases take off we may see a second wave of cloud adoption.

If cloud does have a second wave it’s going to swamp Seattle. It’s not just Amazon. Microsoft Azure and Google Cloud Platform are headquartered here. The region now has 120,000 engineers with job openings for another 20,000. The big three clouds employ thousands of people in the Seattle area. If the cloud market doubles in a year, similar to how the PC market grew after the launch of Windows 95, Seattle will experience another round of insane growth. That doesn’t sound like an industry approaching midlife.