by Meredith Jones, AWS Principal Cloud Economist
The financial challenges brought on by the COVID-19 pandemic have dramatically transformed many sectors. We are seeing companies who are barely getting by and ones who are thriving. One thing is clear, cloud computing helps companies buy time – and time may be the most critical element to survival.
We economists and financial experts love to hold variables constant. Ceteris paribus is an oft-repeated caveat, but the world is dynamic, rapidly changing, and unpredictable. Dynamic problems are rarely solved by static solutions.
We are seeing the value of cloud computing rapidly unfold like never before. The financial challenges brought on by the COVID-19 pandemic have dramatically transformed many sectors. In response, some business models have fundamentally changed. We are seeing companies who are barely getting by and ones who are thriving. One thing is clear, cloud computing helps companies buy time – and time may be the most critical element in today’s fluid environment.
Companies that were already operating in the cloud prior to the pandemic were able to rapidly shift their IT investments to meet the challenges posed by COVID-19. Clothing retailers were particularly hard hit by COVID lockdowns; after all, people generally don’t buy new clothes just to sit at home. Retailers sought ways to close stores and reduce costs without further sabotaging sales. Nordstrom, a longstanding customer of AWS, saw a boost in digital sales of approximately 20 percent in the second quarter last year, much of which CEO Erik Nordstrom, attributes to a strong digital strategy, “For the first time, customers could preview items through a digital catalog and build a wish list to enable them to check out faster when it was time to shop. Our customers created nearly 20 million wish lists, which was not only a great way for them to engage early, but also allowed us to adjust in real-time to high demand items.” While not every aspect of the retail business model is flexible, at least IT infrastructure can be.
As companies shift to a remote, distributed workforce, cloud computing provides them with the tools to improve productivity outside of the office. Popular video conferencing technologies, such as Zoom, allow employees to connect. Amid the COVID-19 pandemic, Zoom added millions of new users and saw a dramatic improvement in revenue, with first quarter earnings of $328 million, up 169 percent year-over-year. CEO Eric Yuan attributed their ability to scale as rapidly as they did to cloud partners like AWS, "As our demand increased, and we had limited visibility into the growth, AWS was able to respond quickly by provisioning the majority of the new servers we needed, so sometimes adding several thousands a day for several days in a row."
The travel industry was one of the most notably hard hit sectors impacted by the pandemic. Marriott CEO, Arne Sorensen, shared, “The COVID-19 pandemic has had a more severe and sustained financial impact on Marriott’s business than 9/11 and the 2008 financial crisis, combined.” However, through their partnership with AWS and a rapidly developing digital strategy, Marriott’s technology solutions have allowed them to pivot quickly. “In the midst of this pandemic, technology has been a key component of our recovery efforts, and I don’t see that changing, even after we eventually return to ‘normal.’ Technology has allowed us to effectively practice social distancing through efforts like mobile room keys and contactless check-in, payments, and room service. All of those things improve our operational efficiency by allowing associates more time to focus on other areas of customer service,” said Sorensen.
Restaurants quickly ramped up mobile apps, delivery options, curbside pickup, and contactless ordering to allow them to stay open during the pandemic. Food delivery services, like DoorDash, partnered with restaurants to deliver meals on demand. DoorDash, having already managed order growth of 325 percent in 2019, was well positioned to scale to meet the rapidly increasing demand for delivery services due to the pandemic. In 2020, DoorDash expanded its partnerships beyond just restaurants and also added grocery stores and drugstores, and they even launched its own virtual convenience store. Since the COVID-19 pandemic, DoorDash’s valuation increased 23%, from approximately $13B in November 2019 to $16B in June 2020.
Companies already operating in the cloud had a clear advantage: no switching costs and the ability to scale up or down in response to changing consumer demand."
Still, many companies that had yet to invest in a digital strategy prior to COVID-19, were left with limited engagement with customers whose buying preferences had changed due to the pandemic. Their largely fixed IT environments were unable to scale up to improve the digital experience and increase revenue. Nor were they able to scale down, locked into infrastructure they purchased with the expectation that customer demand would be somewhat constant. Many had considered a move to cloud in the past, but efforts floundered as they believed their digital transformation could occur over a longer horizon without the threat of sudden, prolonged spikes or drops. The reality is demand shock can occur at any time, often without warning – not just due to a pandemic.
Companies already operating in the cloud, pre-COVID-19, had a clear advantage: no switching costs and the ability to scale up or down in response to changing consumer demand. Many current AWS customers have taken advantage of their ability to scale IT infrastructure down during lulls in customer demand. The AWS cloud financial management team has been hard at work helping customers to eliminate waste and optimize their cloud spend, collectively saving customers millions every year. The ability to protect operating margins by scaling costs as needed proved invaluable, and in an economic climate where cash rules, customers benefited from the ability to instantly recover costs by optimizing their cloud environments. Does this mean that companies who haven’t already moved to the cloud have missed the window of opportunity? Absolutely not. While it’s preferable to be ahead of the next economic shift, AWS continues to help new customers facilitate a smooth transition to the cloud, even those currently in financial distress. Mechanisms like rapid self-funding migrations, cost savings plans, and technical and economic advisors all work together to meet companies’ unique financial needs during their cloud journey. With AWS, be ready for whatever 2021 brings.
About the author
AWS Principal Cloud Economist
Meredith Jones is a Principal Cloud Economist who helps AWS’s C-level customers make informed decisions about their cloud investments. Meredith has over 20 years of experience in finance and information technology leadership.
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