Orbis non sufficit – the race for cloud supremacy

Is anyone else bored by the numbers? Do you find the race for cloud dominance a bit dull? Are vendor boasts reminding you of a recent time in history when getting rich and grabbing more played out pretty badly for most of us?

Fundamental market dynamics dictate that big tech companies must sell more to satisfy shareholders but the persistent desire for growth is taking its toll on workers and the markets are finally realising that not every cloud business has a future.

The earnings call is an established measuring tool for publicly quoted companies with all the major tech vendors (apart from Infor) putting analysts and media people through the ritual of quarterly bragging sessions. These calls start with the headline numbers – how much has top line revenue grown? How much did ARR (annual recurring revenue) increase in the last quarter? And continue with more bluster on the number of net new customers, the growth in ACV (average contract value) and details on backlog (stuff that has been sold but not yet delivered). Once the aggrandising is over, a carefully scripted set of questions is put forward by analysts which provide the vendor with yet more opportunity to recount their successes and flaunt their progress. 

In short, the earnings call provides vendors with a two hour opportunity to extol their own virtues and tell the world how well they are doing. However, I am yet to hear a major tech vendor talk sensibly about how the relentless push for more is impacting their workforce or to articulate a strategy to support and nurture its people.

Having sat through countless earnings calls from all the major cloud and tech vendors I have become immune to the swagger and now find them rather dull. The market mentality is focussed on growth – that’s what everyone looks for on an earnings call and until very recently that’s how the markets graded a particular stock. If a vendor demonstrated 40 percent growth it could expect to wake up to good news from the markets whether or not it was delivering value for its customers, creating a great place to work or operating profitably. The market cap of the major players was measured on a binary scale – more, more and more was the only metric that seemed to matter, until recently.

However, over the last few months there has been a correction to the way that stocks are valued and it is high time that cloud vendors took notice and started to think about alternative metrics to demonstrate their prowess. Yes, the markets are being impacted by global challenges like rising inflation, supply chain pressures and war – but these macro forces aside, the markets are realising that unchecked growth which is not supported by profitability, a sustainable business model and rational planning will not deliver the long term future that was once predicted. 

Until recently there was only one trajectory for enterprise tech vendors – and that was upwards. For the remainder of 2022 and possibly beyond, we are likely to see that momentum slow for many, and for some, it could be the end of the road altogether. In my opinion, it will be the tech companies which place greater importance on their people that manage to ride out the uncertainty while those which fail to address the fundamental challenges faced by workers will see the sharpest declines.

 

The second gold rush

The scramble for cloud superiority and corporate wallet share has created a land-grab mentality amongst many cloud vendors. Fearful of missing out on ‘the greatest growth market the world has ever known’ and beholden to insatiable shareholder expectations – the dominant players in the cloud market have been filling their boots and the expectations are being felt by all of us.

Whether you are on the frontline selling cloud, in the background managing cloud, or riding along on cloud coattails (like we are) the incessant pace and unrelenting expectations must come at a cost, eventually. Where that cost will bite the hardest is yet to be determined but the toll is already evident in workplaces across the globe and responsible employers must arrest their rapacious need for more sales if it comes at the detriment of wellbeing. 

During the mid-nineteenth century gold fever spread around the world like wildfire. The term ‘fever’ was used because those who were seduced by the possibilities of unearthing riches from the ground became ‘feverish’ and oblivious to anything other than lining their pockets. There is a strong argument that ‘cloud fever’ is having a similar impact today.

The Gold Rush in the 1800s had many benefits: an explosion in manufacturing followed as mining machinery, hydraulic equipment and timber products boomed. The abundance of new raw materials led to a surge in agricultural development, often coined as ‘green gold’. And transportation and infrastructure services were transformed – examples include the building of the canal across the Isthmus of Panama, the development of The Pony Express for mail services and the first transatlantic railroad that connected the east coast with California.

Whether you are on the frontline selling cloud, in the background managing cloud, or riding along on cloud coattails (like we are) the incessant pace and unrelenting expectations must come at a cost, eventually.”

 

However, while the ‘rush’ had many positive implications there was also an underbelly of death, discrimination and destruction that followed in its wake. Hundreds of thousands of people died in mining accidents and disputes. The environmental impact was devastating as rivers were damned, soil became polluted and forests were stripped bare. It also led to widespread bigotry, inequality and injustices as the rich got richer and the poor, well you know what always happens to the poor.

Similarly, there are many benefits to the explosion of cloud technologies that have the potential to solve the world’s hardest problems. But there is equally a growing number of concerns connected to the claim modern working practices are having on individuals. Do we really want to look back on the cloud revolution to realise that instead of benefitting from all this new technology to make our lives better, the planet greener and society fairer – we actually spent all our time trying to grab more?

 

Looking for problems that don’t exist, yet

The time to repair the roof is when the sun is shining – and believe me, the sun is shining brightly if your game is selling cloud software and accessories. Public cloud end-user spending is set to rise to a dizzying $500bn this year and that is just the value of the infrastructure spend (IaaS, PaaS and DaaS). Factor in how much money is going to be pumped into cloud applications and you can add another £150bn to that total, maybe more. Then consider how much ecosystem spend this creates and you can probably double the number – it’s mind-boggling that companies are set to spend the same on cloud as the combined GDP of Saudi Arabia and the UAE.

So what’s the problem? Cloud vendors are making hay, the ecosystem is booming, customers are benefitting from new innovations and everything appears rosy. Well, it is for now – but there is a fundamental concern at the back of my mind that just won’t go away. How long can this pace be sustained before someone or something gives?

 

The pressure to grow

The pressure to deliver growth has never been greater – if your cloud business is only expanding by 20 percent you may as well pack up and go home. The market is demanding 40 percent – even more in some cases – but the world and its workers can only tolerate that level of avarice for so long.

The numbers (or the narrative) just don’t stack up for a happy ending – or at least they don’t bring us to the kind of conclusion we would like if we had the chance to stop and think for a moment. How can everyone be growing at 30-40 percent? How can everyone be hiring tens of thousands of new people? How can everywhere be a great place to work? As I look around the global technology community I see people working harder than ever, spending less quality time with their families and under ever more pressure to deliver.

 

Lessons learned

Corporate narrative changed after the financial crisis of 2008, and for good reason. We learned that greed could have severe implications for people when banks and financial institutions were revealed as gluttonous no-gooders. Millions of people around the world lost money, businesses went bust and institutions were wiped from the landscape. While there’s no direct comparison between Lehman Brothers et al and today’s cloud glitterati – the elements in the market and the dynamics between consumer, worker and provider are very similar.

The financial crisis had been brewing for decades but we missed the signs which were hiding in plain sight. Yuppy culture started in the 80s when hedge fund managers drove white Lamborghini Countaches and success was measured by how much cocaine was consumed on a lunch break. These brash, pinstriped executives moved numbers on a spreadsheet and at a stroke made a fortune or lost it. Huge bets were placed and when the bets went wrong they bet some more to recover losses. We never questioned how or why because life was good: we could all access finance, interest rates were low, employment was high and the standard of living was on the up. Scroll forward just a few years and people were left scratching their heads when they realised we had all been asleep at the wheel. 

The cloud industry isn’t storing up dirty secrets in the same way the financial sector did and there isn’t an impending crash on the horizon. But there are latent ingredients in today’s cloud market that point to an unsustainable trajectory and a likely impact for those wrapped up in it.

 

The world is not enough

The ‘world is not enough’ is paraphrased from an ancient Satire called ‘The Vanity of Human Wishes’. The term was later used by King Phillip II of Spain when he ascended to the Portuguese throne to underline the fact that Portugal was not the only conquest he had in mind. It was also used in a Bond film with slightly less significance. 

The idea that we (as people, citizens and workers) should push ourselves to do more and strive forward is part of human nature – progress is in our DNA. But how we measure that progress must be aligned to the values that we hold as a civilised species. In the past, human endeavours were easily tracked to a humanitarian benefit: the agricultural revolution moved people from a subsistence living to one of plenty. The industrial revolution gave us machines that increased living standards. The digital revolution appears to be driving many of us into an early grave.

Just like the prospectors from the nineteenth century, millions of modern day workers are caught up in the cloud rush. The implications for us may not be as severe as they were for gold miners from 200 years ago but surely we have learned that there is only so much in the tank and people can only give so much. The demands and expectations that are being placed on workers, managers, board members, companies, supply chains and the broader environment have never been greater and the expectations are still increasing. 

One thing is for sure, not every major cloud vendor will still have a seat at the table in 20 years’ time – so what will determine the successes from the failures? Given that the merchandise itself is more of a commodity than a unique offering it is unlikely to be dictated by product superiority. Other factors, not currently valued by many, will influence the long term future of these global powerhouses – chief amongst which will be the ability to provide a supportive, rewarding and fulfilling environment for workers.

How will you remember the cloud era when talking to your grandchildren? By telling them how technology revolutionised science, tackled sustainability and created a more equal and benevolent world. Or by boasting about how much compute you sold?