While AWS added a whopping $919 million in new revenue from Q2 to Q3 of this year, the unavoidable fact is that it is growing much slower than its primary competitors and might be in the midst of becoming a jarring example of Clayton Christensen’s classic The Innovator’s Dilemma.
Depending on where you sit — or, more tellingly, on whether you’re an AWS stakeholder or a competitor — the fact that AWS reported Q3 revenue was up 12% to $23.1 billion could be construed as good news or bad news.
For AWS fans, those results are likely to center on the primary talking point about AWS from Amazon CEO Andy Jassy during the past two quarters: The AWS business is “stabilizing” as customers might (or might not) be winding down their “optimization” efforts. So bust out the champagne because the eight-quarter-long tumble in growth rates has ended. That sequence began in Q4 of 2021 and runs through Q3 of 2023, and here are the growth numbers for each of those three sequential quarters:
- 40%, 37%, 33%, 27%, 20%, 16%, 12%, and 12%.
If you find that’s cause to celebrate, knock yourself out.
But I think that celebration’s going to be pretty tame, because lots of people are asking themselves these and similar questions:
- In the same Q3, how did Microsoft manage to grow its cloud business by 24%, which is 2X the AWS growth rate of 12%?
- Looking at Q2 and Q3, how was Microsoft able to raise its sequential growth rates from 21% in Q2 to 24% in Q3, while the best AWS could do was halt its long and precipitous growth slide with two straight quarters of 12%? Don’t Microsoft Cloud customers “optimize”?
- And for anybody squabbling about the challenge of growing a business as large as AWS and its $92-billion annualized run rate, how was Microsoft able to deliver vastly superior Q3 results despite having a cloud business that’s 38% larger than AWS’s? For the sake of comparison, Microsoft’s quarterly revenue for the same period (its fiscal Q1) was $31.8 billion, giving it an annualized run rate of $127.2 billion. (For more on that, please see “Microsoft Cloud Shocker: Oracle Major Driver Behind Blowout Q1 Numbers!“)
- While Jassy repeatedly cited customer “optimization” as the one and only factor that has dragged down AWS’s growth, why hasn’t the “optimization” bogeyman caused Microsoft similar problems?
- Over at Google Cloud, Alphabet CEO Sundar Pichai pointed to the same “optimization” trend, yet Google Cloud still managed to post a growth rate of 22% — how did that happen? Part of the answer in this case is that Google Cloud’s revenue base is much smaller — $8.4 billion for the quarter compared to AWS’s $23.1 billion.
- Then there’s Oracle with its relatively small but booming cloud-infrastructure business: As Oracle competed head-to-head against AWS for infrastructure deals, how did tiny Oracle manage to win enough deals for its quarterly revenue to grow 66% to $1.5 billion?
The core premise of Christensen’s The Innovator’s Dilemma is that highly disruptive companies, after unleashing wildly different and successful products and approaches, become ensnared in their own success and are unable or unwilling to respond to a next wave of upstarts that triggers a fresh cycle of disruption.
What AWS has accomplished over the past 18 or so years is breathtaking, and tens of thousands of companies and other large organizations the world over are better off because they tapped into AWS’s world-shaking technologies and ideas.
But as the cloud has evolved at an extraordinary pace and has become as much about highly differentiating software as it is about infrastructure and hardware, is AWS becoming ensnared in its own amber? Is its intense focus on infrastructure — including its new generation of chips — precluding it from more successfully exploiting the remarkable new innovations made possible from software?
“Stabilization” can be a fine thing in many contexts. But I would say that in the hyperactive world of the Cloud Wars, it is more of a vice than a virtue.
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