Cloud Business Grows, but Jobs Don’t

At a time when the demand for cloud-based infrastructure is on a growth path, thanks to the developments around artificial intelligence (AI) and its role in multiple industries, it is rather surprising that big tech companies operating here are cutting jobs. Reports say hundreds of employees are being laid off by Microsoft and Google in their cloud business units.

While it is true that the global economic slowdown caused substantial job cuts in the technology space, specifically in the United States, what appears weird is that the world’s hyperscale cloud business owners are downsizing in spite of booming business. Or is that the proponents of GenAI are actually misrepresenting the demand for computing infrastructure?

A report in Business Insider says Microsoft is knocking off 1,500 jobs at its telecom-focused Azure for Operators business and many more from its Mission Engineering operations. In a parallel universe, CNBC reported that Google too was downsizing its cloud unit with job cuts coming from sales, consulting, go-to-market, strategy, operations, and engineering. 

Downsizing trends continue in 2024

The downsizing trend has continued right through 2022 and 2023 and was expected to ease somewhat in the current year, thanks to the green shoots of growth visible in the US economy and those of other countries. However, delays in the interest rate cuts by the US Fed seems to be making the tech industry nervous, given its impact on higher enterprise spending on IT. 

Through 2023, tech giants such as Microsoft, Google, Meta and Amazon removed over 260,000 people from their payrolls, representing a significant spike over the numbers who lost their positions in 2022. Thus far in 2024, these large companies have reportedly knocked off a further 40,000 jobs. 

In fact, data provided by Layoffs.ai and Stocklytics indicate that as many as two-thirds of these job losses in the first five months of 2024 came from four companies, viz., SAP, Cisco, PayPal and FarFetch. So, one must add a caveat here that the purported reduction of staff by Google and Microsoft in their hyperscale infrastructure business is rather small in comparison. 

The mysterious job cuts in profitable divisions

Which brings us to the mystery around these job cuts. Microsoft’s Azure for Operators division focuses on the 5G cloud demand, a segment which has seen robust activity and growth in recent times due to several acquisitions. Microsoft itself acquired AT&T’s Network Cloud technology in 2021, a deal that enveloped the latter’s telecom plans for the future. 

Similarly, Google too has witnessed robust growth in its cloud business that covers most of its AI-led technology. Revenues grew by 28% from a year ago to touch $9.57 billion for the latest quarter while operational income went up four times to $900 million. These figures prove that Google was finally generating big profits into its cloud business where Amazon and Microsoft had already carved out a niche. 

Research reports suggest big growth for cloud

If that’s not enough, a report by Synergy Research Group (SRG) highlighted that overall cloud spending rose by 21% during the first quarter of 2024 compared to a year ago. Total spends ranged around $76 billion with another report by IDC actually predicting that global spending on public cloud infrastructure at $219.3 billion by 2027.

And, in case you thought these were big bets, Gartner went a step further to predict that global end-user spending on public cloud would spike by over 20% to reach $675 billion this year as against $551 billion in 2023. They attributed the spike to the fast-paced growth in the generative AI services business. 

And yet, employees are being let go…

So, what exactly is making these two hyperscale giants reduce their workforce? Here is what Google said while announcing the cuts: “As we’ve shared before, we continue to evolve our business to meet our customers’ priorities and the significant opportunity ahead. We maintain our commitment to investing in areas that are critical to our business and ensure our long-term success.”

As for Microsoft, we can only speculate that the decision somehow hinged on the impact of the company’s $10 billion investments in OpenAI. For the record, the layoffs came across teams that were part of the broader set up that housed the company’s Strategic Missions and Technologies organization created in 2021. This was headed by former Azure boss Jason Zander to create cutting-edge initiatives such as quantum computing and space. 

All of this is mere speculation from our side as there’s actually no clarity provided by either of the two tech giants on why they let go of people from a highly profitable business division. One that has tremendous upside, even if one were to cut out all the clutter that surrounds the AI and Gen AI narratives floating around.