Scale up, Scale Down

One of the things we discussed ad nauseam on the pods last year was how prepared the consumer and corporations were to enter a recession. The consumer was flush with cash from fiscal stimulus, and businesses were also sitting on a ton of cash after binging on debt in 2021.

I was thinking about this idea while reading Amazon’s 2022 shareholder letter, emphasis mine:

AWS has an $85B annualized revenue run rate, is still early in its adoption curve, but at a juncture where it’s critical to stay focused on what matters most to customers over the long-haul. Despite growing 29% year-over year in 2022 on a $62B revenue base, AWS faces short-term headwinds right now as companies are being more cautious in spending given the challenging, current macroeconomic conditions. While some companies might obsess over how they could extract as much money from customers as possible in these tight times, it’s neither what customers want nor best for customers in the long term, so we’re taking a different tack. One of the many advantages of AWS and cloud computing is that when your business grows, you can seamlessly scale up; and conversely, if your business contracts, you can choose to give us back that capacity and cease paying for it. This elasticity is unique to the cloud, and doesn’t exist when you’ve already made expensive capital investments in your own on-premises datacenters, servers, and networking gear.

I’m not saying cloud computing can prevent a recession, but it can definitely make a downturn easier to manage. The ability for companies to turn the knobs down almost overnight has huge implications for how businesses do business.