There are three risks to Amazon's, Microsoft's, and Google's otherwise 'recession-proof' cloud businesses, experts warn
- Even as markets are in turmoil due to the coronavirus pandemic, analysts says that Amazon Web Services, Microsoft Azure, and Google Cloud are "recession proof" businesses.
- Still, cloud providers could face increased cybersecurity challenges and a strain on their own infrastructure.
- Also, deal flow could slow since salespeople can't meet with potential customers face to face.
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As the coronavirus outbreak strains supply chains, slows sales, and shutters companies around the world, Amazon, Microsoft, and Google's cloud services businesses will likely escape unscathed.
Unlike consumer technology, the enterprise space is much more "recession proof," says Ray Wang, founder of Constellation Research. Because customers rely on the cloud to run their crucial applications and software, they're not likely to cancel their cloud services, even during an economic slowdown.
Amazon Web Services, Microsoft Azure, and Google Cloud could even see a boost in their business, says Andrew Bartels, vice president and principal analyst at Forrester.
"If anything, I think they may benefit if there is a slowdown as companies look at that as saving money by not having to upgrade and replace a server," Bartels told Business Insider.
Still, there are three risks that these cloud providers need to watch out for, analysts say. During the coronavirus outbreak, cloud providers could face increased cybersecurity challenges, a strain on their own infrastructure, and sales slowdowns.
Cybersecurity attacks could be 'catastrophic'
Cloud companies could face more stress-tests than usual on their security infrastructure.
An increased demand for cloud services paired with more employees working from home could mean a broader attack surface for bad actors, analysts say. In other words, there may more points where an unauthorized user could hack into a system or steal data.
A successful attack at this time would be "catastrophic," Bartels says.
Another risk, analysts say, is that companies might not have the bandwidth to keep up with higher workloads. As more people in quarantine turn to streaming and other online services, AWS, Microsoft, and Google Cloud may be facing higher capacity than usual.
"There's a lot of demand," Alex Zukin, managing director at RBC Capital Markets, told Business Insider. "Keeping up with that demand and making sure up-times are where they need to be," will be top-of-mind for the cloud service providers.
The coronavirus also leads to an increased risk that employees won't be able to complete their normal duties, so cloud companies will need to have emergency preparedness plans in place to continue providing services to customers, says Sanjeev Mohan, senior analyst at Gartner. For example, a virus-related lockdown might stop employees from being able to go to work in a data center.
"This is when this multi-zone, multi-region approach becomes even more important," Mohan told Business Insider,
'We might see bigger cutbacks in the IT budget'
Similarly, as efforts to slow down the spread of the coronavirus require more employees to work remotely, sales teams may not be able to meet with existing customers or potential new customers face-to-face. This could hinder their abilities to complete new deals, says Dave Heger, senior analyst at Edward Jones.
Purchasing decisions may face delays, too, as companies assess potentially leaner budgets and need to decide what technology to keep and drop, Heger says. Though he doesn't believe that there will be a longer term effect, he says it could impact AWS, Microsoft, and Google Cloud for a quarter or two.
"There's a lot of uncertainty in terms of how much economic impact this has," Heger told Business Insider. "Do we go into a full blown recession? We might see bigger cutbacks in the IT budget which might delay the industry. We still see it growing even through an economic downturn."
Heger says while cloud companies may risk slower sales during the current coronavirus crisis, there will still be demand in the long run. Smaller and younger startups are putting everything on the cloud, while larger companies are now making that shift, he says.
"Ultimately I don't think the cloud trajectory changes that much," Heger said. "It's a wave that's been growing. As you talk to IT professionals, they're looking to move more and more away from their internal data centers and into the cloud."
Google, Amazon, and Microsoft were not immediately available for comment.
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