Amazon’s cloud business is in danger of missing sales goals in one key part of the business, insiders say

  • AWS’s growth rate has slowed and its SMB sales unit will likely miss 2023 targets, sources say.
  • AWS established a lead in cloud computing by catering to startups and small businesses better than competitors.
  • This is just one of the many challenges that AWS is currently facing.

The Amazon Web Services team in charge of selling services to startups and small businesses is struggling to meet its 2023 sales targets, according to two people with direct knowledge of the situation.

One analyst believes the SMB team will undoubtedly miss its targets, and managers are under increasing pressure to improve their numbers. According to the other, the startups team is only slightly behind this year’s sales goals, and no one is panicking yet because AWS expects a handful of its startup customers, such as AI upstarts Anthropic and Hugging Face, to really take off and eventually increase their spending. Because they are not authorized to speak to the press, both people requested anonymity. BI is aware of their identities.

This year’s poor funding environment for startups has resulted in a wave of shutdowns, which has emerged as a risk for AWS.

To be fair, AWS is probably doing much better in other areas. Amazon’s spokesperson, Rob Munoz, told BI earlier this week that it’s “inaccurate” to say AWS’s growth is slowing without specifically referring to the startups or SMB segments. He estimated that AWS had the highest absolute revenue growth of any cloud provider in the third quarter, with $919 million in sales added. Other cloud companies may report higher percentage growth, but they are starting from a lower base, he added.

On Thursday, an Amazon spokesman provided BI with another statement.

“AWS continues to be the top choice for SMBs and startups by a wide margin,” said this spokesperson. “Over 80% of unicorns choose AWS, including innovators like Wiz, Ultimate Genomics, Plaid, Venmo, Acorn, and Robinhood, because they can build fast, keep costs low, and take advantage of industry leading offerings in areas such as generative AI.”

Microsoft’s Azure cloud revenue increased 29% year on year in the third quarter, while Google Cloud revenue increased 22%. This exceeds AWS’s 12% growth rate, the lowest since it first disclosed its financials in 2015, and is lower than the 27% growth rate it reported a year ago, in Q3 2022.

However, because each of these cloud providers calculates its cloud growth rates differently, making apples-to-apples comparisons is difficult. However, the pattern is clear: AWS’s competitors have begun to catch up. This is especially true for Microsoft, which has already reported that new generative AI products are contributing to cloud growth.

AWS built its lead by better serving startups and small and medium-sized businesses than its competitors. As a result, the true longer-term risk for AWS is that its competitors become known as a better choice for AI startups, which is the one area of startup investing that hasn’t been stifled by slowing funding.

Munoz also stated that AWS has signed “multiple significant new agreements with customers that will begin taking effect in Q4, but will roll out over several months.” According to him, it’s “typical that company’s cloud transformations happen in phases,” and Amazon Web Services (AWS) continues to make “meaningful progress across various segments, including Enterprise, ISVs, Startups, Digital Native companies, and SMBs.”

As previously reported by BI, the sales shortfall in this segment is one of many challenges confronting AWS, along with employee burnout and a more bureaucratic work culture.

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