One of the main reasons cloud computing was advanced as revolutionary was that it offered businesses the chance to move from capitalised expenditure on IT to operational expenditure.

But a couple of recent events firmly suggest that buyers may well be happy with old spending patterns.
One is Amazon.com’s Q2 2018 results, filed this week, which included news that over at Amazon Web Services “For contracts with original terms that exceed one year, the amount of revenue not yet recognized was US$16.0 billion as of June 30, 2018.”
The key term here is “not recognized”, as that could well be revenue that’s been received but which Amazon won’t yet count because it hasn’t delivered the services.
It may not deliver them for some time because Amazon’s filing also revealed that “The weighted average remaining life of our long-term contracts is 3.5 years.”
Pull back the lens a bit and $US16bn tied-up in three-and-a-half-year-long contracts is not a radical departure from pre-cloud capex spending plans.
Those contracts are also longer than many conventional server and storage refresh cycles. Yet businesses have signed up for the AWS cloud for years at a time!
Another sign that capex-like spending patterns are on the way back comes from Microsoft, which in late 2017 announced “reserved instances” for Azure that offer very steep discounts if end-users pay for them up front for either one or three years.
The in mid-July 2018 Microsoft made a new offer that made reserved instances the cheapest way to license its workhorse products Windows Server and SQL Server.
It’s a rare Microsoft shop that hasn’t gone deep on those two products so there’s not much excuse for a CFO and CIO to avoid a conversation about how reserved instances fit into their future purchasing plans.
The intent is clear: Microsoft wants you to sign up for years at a time and pay up front for the best prices. So do Google and IBM, both of which already off reserved instances.
Microsoft, however, has a head start because its Software Assurance scheme delivers years worth of software licenses and is so successful that the company’s books mention tens of billions in unearned and/or unrecognized revenue.
Amazon’s retail activities don’t lend itself to that kind of revenue, but its digital businesses do. For AWS to have booked US$16 billion is therefore significant, because every tech vendor earnings call iTnews listens to features vendors’ CEOs and CFOs emphasizing their successful shifts to subscription revenue.
AWS is therefore not just succeeding as a standalone business but helping its parent to satisfy investors at the same time. And all by convincing its customers that the old way of doing things – paying up front – is the way to handle the new way of running IT.