Snap is cutting back its cloud spending, reducing how much it pays both Google Cloud and AWS.
Snap relies on both cloud providers to power its operations. Like many tech companies, however, Snap is looking to cut costs and operate more efficiently. According to Business Insider, CFO Derek Andersen said the company had identified its cloud contracts as an area to cut back, with cloud expenditures second only to employee pay in cost.
As a result, the company has “restructured and renewed to achieve lower pricing and better ongoing leverage in those relationships,” Andersen said.
There was likely quite a bit of room for negotiation, with the company signing a five-year, $2 billion deal with Google in 2017. Similarly, the company had signed a $1 billion deal with AWS that lasted through December 2021.
“We’ve focused intently on efficient unit-cost management by engineering our products efficiently, and by migrating among cloud services and products to drive down our unit costs,” Andersen said.
The efforts appear to be paying off. While Andersen did not say exactly how much the company had reduced its cloud costs, he did say that infrastructure cost per daily user had dropped from $2.78 two years ago to $2.31 today.
Snap’s actions illustrate the dilemma many companies now face. The pandemic helped fuel a record-breaking rush to adopt cloud services in an effort to better support remote and hybrid work. The pandemic also helped drive record sales for many tech companies. As the pandemic has waned, however, many companies are now paying for massive cloud contracts at a time when business is nowhere near as profitable as it was a year ago.
While the cloud segment has been relatively insulated from the economic downturn, that could quickly change as more companies follow Snap’s lead.