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Protocol Cloud
Your weekly guide to the future of enterprise computing.

Protocol Cloud: Follow the (infrastructure) money

Protocol Cloud: Follow the (infrastructure) money

Welcome to Protocol Cloud, your comprehensive roundup of everything you need to know about the week in cloud and enterprise software. Today we'll take a look at a big week in cloud tech earnings, how AWS ran interference for the NFL, and what could be the start of some frenzied, pandemic-driven deal-making.

Number of the Week

300 million

That's how many people are now using Zoom on a daily basis, up from 200 million a few weeks ago and 10 million at the beginning of the year.

The Big Story

What we can learn from capital spending

All eyes this week are on tech earnings: What impact did one of the most tumultuous months in recent history have on the end of the first quarter — and how are companies positioning themselves for what could be many more months of economic uncertainty to come?

One key cloud computing metric to look at: Capital expenditures, which are always a strong signal for how executives are thinking about future demand. The cloud is expensive; maintaining a worldwide network of data centers costs billions of dollars each quarter, and demand is increasing overall. So any changes in the rates at which the big players are investing in their cloud infrastructure are telling.

  • Intel, one of the biggest suppliers to the major cloud providers, said last week it expects demand for its processors to stay strong through the second half of the year, coming off one of its strongest quarters ever for server chips.
  • Microsoft Azure's capacity issues seem to be waning, but it will likely have to invest even more than planned over the course of this year, as it rolls out availability zones in more regions.
  • 59% of companies surveyed by Flexera plan on increasing their spending on cloud services in the post-pandemic world, with 30% of companies planning to spend "significantly higher" amounts on the cloud.

Of course, forecasting cloud demand, and appropriating supply, is a tricky business in normal times, and when the business world is facing its most uncertain six-month period since the 2008 financial crisis, it's even trickier. Some hurdles include:

  • Some cloud customers endured brutal hits to their businesses in late March, especially in the travel and entertainment industries. Some of that demand will never return, and it could take a long time for those that survive to return to their previous levels of cloud usage.
  • Intel expects to release a new Xeon server processor by the end of this year, which traditionally means really late in the year. Cloud buyers are well aware of Intel's road maps and might have been planning to save their resources for servers built around that next-generation chip in the fourth quarter, only to face this unexpected spike in demand six months early.

Last week, Synergy Research estimated that the cloud industry has already spent more money on data centers so far this year than in all of 2019, and that between the two of them, Amazon and Microsoft have some 50 new data centers in the works. However, on Tuesday, Google warned that the advertising crunch is going to affect its data-center spending over the rest of 2020.

  • Alphabet CFO Ruth Porat said that while Google had planned to increase spending on data centers and cloud equipment in 2020, it now expects to spend "roughly" the same amount it did last year on "technical infrastructure."
  • It seems like Google expects to find it harder to start data-center construction projects amid the pandemic, but Porat also said the company expects to increase spending on servers and focus on server efficiency in its existing data centers.
  • To be clear, we're still talking about a lot of money: Alphabet spent $25 billion on capital expenditures in 2019, and while some of that spending went toward fancy office buildings, the bulk of it was spent on cloud infrastructure.

The long-term story for cloud computing is unchanged by this pandemic. The short-term story remains anybody's guess, and this week should provide a lot more clarity about how the cloud giants are sizing up the rest of the year.

This Week In Protocol

Kurian's korner: Ahead of Google's earnings results, I had a chance to talk to Google Cloud CEO Thomas Kurian about the impact of the pandemic on the company's customers, as well as its plans for the rest of the year. Apparently Google Cloud has a "Black Friday/Cyber Monday" setting that it invokes during that most wonderful shopping time of the year, and as the impact of the pandemic became clear, it went to that footing six months ahead of schedule.

Check please: We've talked a lot about the technical issues states have run into as demand for unemployment and other services skyrockets during the pandemic, but there are other critical parts of the economy that rely on old tech as well. Earlier this morning I took a look at how Wall Street, long a cloud skeptic, is running toward cloud services as it becomes acutely aware of the risks involved in relying on outdated infrastructure.

OK Zoomer: Is Zoom going to be the Yahoo of enterprise video chatting? David Pierce took a look at a few startups that are thinking differently about the Future of Work than entrenched powers like Zoom, Microsoft, Google, Slack and others.

Cloud on two: Last week the National Football League put on the closest thing to a sports event that sports junkies such as your author have gotten to satisfy their craving over the last month, and AWS provided several cloud services required to make it happen. Too bad their opsec people didn't warn Las Vegas Raiders coach Jon Gruden that his draft board was in plain sight of any viewer.

Around the Cloud

Thanks for reading — I'll see you next week.

Source Code: What matters in tech, in your inbox every morning

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