Hyperscalers to face tough time ahead

S Mohini Ratna, Editor, VARINDIA

There has been an unprecedented spike in organizations embracing digital transformation. Organizations trying to “do more with less” often look to the cloud. It has become a common assumption that adopting cloud computing will automatically translate to reduced costs. But the reality can be a different story. Hyperscalers are a critical part of digital transformation but it'll cost you more every time.

A recent report says, slower cloud spending by inflation-hit businesses is expected to stall the sales momentum at Amazon.com Inc and Microsoft Corp and add to the troubles of the sector that laid off thousands recently. The fact is even a single minute of downtime can cost a datacenter thousands of dollars.

Two particular pain points that have come to the forefront this year for a lot of hyperscalers are rising energy costs and sustainability initiatives. Many data centers, hyperscalers included, are continuously searching out ways to utilize renewable energy sources and minimize their carbon footprint. With the cost of energy soaring, and the sheer amount required to power vast hyperscale networks, providers are having to increase their efforts tenfold. 

Two of the biggest challenges hyperscale networks face are continuity and reliability that go hand-in-hand. These terms are typically associated with service or “uptime”. The higher the uptime, the more continuity of service and the better the reliability. After years of strong growth, most recently fuelled by remote working and studying during the pandemic, cloud demand has cooled in the past nine months and sales growth may slow further, as per the analysts.

Nowadays, technology trends are showing the frequency of downtime is increasing, along with the severity and widespread impact. Recently, there was a major outage by Apple, followed by Microsoft Azure, Google Cloud, Spotify, WhatsApp, Teams, Twitter, and others. Consumers and businesses are more interconnected and reliant on cloud-based technology and software than ever, from remote business communication to online learning to simply listening to your favourite podcast on your way to work. Outages can impact any industry.
Constant technological advances are almost amongst the challenges hyperscale networks face. Operating out-of-date technology consumes more space, power, and time, meaning there is always a constant replenishment required. The rapid growth of hyperscale data centers is dependent on the strength of their supply chain.

The most recent outage is that of Microsoft Outlook and Teams terming it as Microsoft Outage where users who are being serviced by the affected infrastructure may be unable to access multiple 365 services. Microsoft also acknowledged the issue and is working towards resolving it. These outages impact businesses and organizations.

We depend on these platforms so much that a mere absence of their services for a couple of hours to a few minutes halts operations and the normal functioning of work. End-user cloud spending for services including those from the world's largest providers - Amazon Web Services (AWS) and Microsoft's Azure - is expected to grow 20.7% this year after 18.8% growth in 2022 and 52.8% in 2021, according to research firm Gartner.

A lot of companies are slowing their migration to the cloud or asking for a lower price on their existing plans," say Experts. Satya Nadella, CEO, Microsoft said last week that businesses were exercising caution as "some parts of the world are in a recession and other parts are anticipating one”.

Microsoft announced its latest quarterly earnings, reporting its slowest growth in six years, with profit falling 12 percent and revenue rising 2 percent from a year earlier; both figures fell below Wall Street expectations. AWS, Amazon's most popular cloud business from which it gets more than a quarter of its revenue, is expected to post a 24% increase in sales in the quarter. It grew 28% in the July-September period.

The slowdown resulted, Microsoft to cut 10,000 workers, almost 5% of its workforce, at the same time Amazon to chopping down 18,000 positions and began notifying affected employees .The slowdown is also expected to weigh on Alphabet Inc, the third-largest cloud provider, a sign that the overall market was maturing, analysts said. 

Having said that, Easy to move “workloads are already on the cloud and it will be harder for providers to encourage businesses to move the next batch of workloads to their platforms”. However, Hybrid cloud is expected to grow, where many enterprises are expected to move out of Hyperscalers to local cloud service providers to balance the payment among on-premise and Private cloud, since hyperscalers are all time very expensive.

Finally, customer confidence is of huge importance to hyperscalers as they aim to convince customers that their confidential data, and the data of their customers, is in safe hands.