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Is now the time for retailers to double down on cloud investments?

January 9, 2023Written by Tom Ryan

Photo: Getty Images/gorodenkoff

Microsoft last week was downgraded by UBS as field checks showed slower growth for cloud software providers, including Microsoft’s Azure unit. Azure “is entering a steep growth deceleration that could prove worse [in Microsoft's 2023 and 2024 fiscal year] than investors are modeling," analyst Karl Keirstead wrote in a note attained by Reuters. The business “may be slowing due to maturation, not just a tough macro,” he added. The downgrade comes as the cloud computing providers reported robust gains in the third quarter but warned of decelerating growth amid macro pressures. Amazon Web Services’ sales grew 27.5 percent, its slowest expansion since at least 2014 and six percent below its second quarter rate. Amazon CFO Brian Olsavsky told analysts, “The continuing impacts of broad-scale inflation, heightened fuel prices and rising energy costs have impacted our sales growth as consumers assess their purchasing power and organizations of all sizes evaluate their technology and advertising spend.” Mr. Olsavsky noted that one of the “real valuable points about cloud computing is that it's turning fixed cost into variable” to help organizations when seeking cost savings. Alphabet reported 37 percent growth at Google Cloud year-on-year, down eight percentage points over the previous year. Some of Google Cloud’s customers are taking longer to decide or committing to shorter-term or smaller size deals. Sundar Pichai, CEO, nonetheless added, “The long-term trends that are driving cloud adoption continue to play an even stronger role during uncertain macroeconomic times. Google Cloud helps customers solve today's business challenges, improve productivity, reduce costs and unlock new growth engines.” In a Harvard Business Review column, William Forrest, senior partner in charge of McKinsey’s Cloud practice, said organizations have a “can’t-miss opportunity” to shift beyond moving applications from their own servers (“lift and shift”) or building test environments to try new programs as tech talent has become available. “Now is the time to think bigger and smarter,” he wrote. “In 2023 companies should focus on building out strong cloud foundations that allow them to take advantage of the most important benefits that cloud provides (e.g., scaling applications or automatically adding capacity to meet surges in demand).”

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