3 Key Aspects of Cloud Commits You May Be Underestimating:
1️⃣ Magnitude of the contracts customers sign with hyperscalers
2️⃣ Constant YoY growth of commits that companies sign up for
3️⃣ Commits are binding contracts, not just declarations
Let's zoom in on Snowflake, a telling example.
⚖️ Commits Magnitude
In early 2023, Snowflake, a leader in cloud data warehousing, inked a striking $2.5Bn cloud infrastructure agreement, spanning 5 years, with a hyperscaler.
“In January 2023, we amended one of our third-party cloud infrastructure agreements effective February 1, 2023. Under the amended agreement, we have committed to spend an aggregate of at least $2.5 billion from fiscal 2024 to fiscal 2028 on cloud infrastructure services”
To put this $2.5Bn commitment in perspective, it was larger than Snowflake's $2.1 billion annual revenue for the fiscal year ending January 31, 2023. Notably, this is with just one hyperscaler, while Snowflake collaborates with all three - AWS, Microsoft Azure, and Google Cloud.
📈 Rate of Growth
This commitment drives nearly doubling Snowflake's annual cloud spend over these 5 years, marking an 86% increase. The average YoY growth is 17%, broken down as follows:
$350 million in FY 2024
$450M in FY 2025
$500M in FY 2026
$550M in FY 2027
$650M in FY 2028
✍ Commits are Binding Contracts
These commitments are not just goals but enforceable contracts. Snowflake explains: “We are required to pay the difference if we fail to meet the minimum purchase commitment during any fiscal year, and such payment can be applied to qualifying expenditures for cloud infrastructure services during the term of the amended agreement.”
📊 Most Enterprises have Commits
For those in cloud alliances or leveraging cloud marketplaces, these trends are significant.
Most enterprises are likely to have similar commitments with at least one, often two hyperscalers. (check my post on multi-cloud - link in comments).
While these commits offer bulk discounts, they also bind companies to specific spending targets, often effectively incentivizing accelerated cloud migration. The 17% YoY growth is a prime illustration of this trend.
🛒 Cloud Marketplace Advantage
A strategic advantage (a “loophole”?) that hyperscalers created for companies: the ability to apply commits towards third-party SaaS purchases via cloud marketplaces. Why? Because this not only drives their cloud consumption but also creates stickiness and a network effect.
Snowflake itself has excelled in selling on cloud marketplaces - it has generated $1Bn in sales of its software via the Amazon Web Services (AWS) marketplace.
The scale of commits and the impact of cloud marketplace is already incredibly significant.
Have you started leveraging this trend yet?
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