The ability to rent computing power online has revolutionized the internet economy and turned a trio of companies which include Amazon, Microsoft Corp. and Alphabet Inc.’s Google — into the indispensable utilities of the web. The trio was expected to generate annual cloud revenue of more than $60 billion — before greater demand from stay-at-home orders turned the cloud businesses into one of the bright spots says a Bloomberg report.
By mid-March, John Lyotier’s travel software business Left Technologies Inc. was cratering with the spread of the pandemic. Seeking to cut costs, he reached out to his office landlord, who offered rent relief. Then he contacted Amazon.com Inc., asking to “explore creative financing opportunities” for his monthly cloud-computing bill.
The response was succinct. “’Nope, that’s the way it is,’” Lyotier recalled.
With the economic devastation of Covid-19, entrepreneurs like Lyotier feel the fate of their businesses rests on the benevolence of their cloud provider. While Amazon Web Services, or AWS, and Microsoft are restructuring some large contracts on a case-by-case basis, according to people familiar with the decisions, smaller companies aren’t receiving the same flexibility. Half a dozen startup executives said recent appeals to these cloud companies have gone unanswered.
While older technology providers, such as Cisco Systems Inc., are offering credits to customers, the major cloud companies haven’t made any public announcements about deferring or cutting bills for clients.
“They’ve been pretty radio silent,” said Jason Kim, co-founder Taloflow, which advises businesses on managing AWS bills.
Cloud providers attracted so many companies over the past decade, in part, with the flexibility of the model. Businesses can start with a credit card, often on a pay-for-what-you-use basis, rather than pay for a back-room server or mainframe computer. Demand drops, and, typically, so does cloud usage and the bill.
But the sales strategy for the big cloud companies has been to ink long-term deals. Customers typically receive discounts on list prices in exchange for minimum spending thresholds. As of the end of December, AWS recorded $29.8 billion it expected to post as future revenue as part of such contracts that run more than one year.
Google told investors that at the end of 2019 it had $11.4 billion in cloud sales it planned to book. Microsoft sells cloud services, as well as much of its on-premise software, via multiyear agreements.
Startups and other companies locked into these contracts feel particularity hurt. “Their revenues have sunk 50% or 60%, but their costs have remained static,” said Kim.
Regulated, traditional utilities have offered some relief. California state regulators, for example, prohibited utility providers from shutting off power for missed payments. When a California company asked Google for payment assistance, it was told the company could only suspend their account and reopen it 30 days later, according to an April 1 email viewed by Bloomberg News.
“We treat payment terms with our customers or partners as confidential and we’re not able to disclose details,” a Google Cloud spokesperson said in a statement.
An AWS spokesman said customers can turn off cloud services in a way that wouldn’t be possible with corporate-owned data centers. The company published a blog earlier this month with tips on how to reduce AWS costs during the pandemic. “This is a very difficult time for some of our customers, and we are actively working across a number of dimensions to help them manage costs,” the spokesman said.
Microsoft has been postponing renewal dates on cloud contracts to give some large companies in industries, including oil and gas, consumer packaged goods and retail, time to evaluate the toll from Covid-19, said a person familiar with the agreements, who asked not to be identified discussing private talks. Over those three months, pricing will remain fixed.
Microsoft, like other vendors, generally increases the price when existing customers sign up for another multiyear contract. The company is cutting those markups in response to the pandemic. Microsoft also is giving some clients a discount on money owed for using more services than paid for upfront.
(Image Courtesy: www. blog.intakeq.com)