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Amazon and Microsoft's massive cloud growth could be slowed by labor shortages of IT talent, Wall Street analyst warns

Business Insider logo Business Insider 7/18/2021 blin@businessinsider.com (Belle Lin)
Adam Selipsky, Satya Nadella are posing for a picture: Adam Selipsky, the CEO of Amazon Web Services, at left, and Satya Nadella, the CEO of Microsoft. Tableau/Getty Images © Provided by Business Insider Adam Selipsky, the CEO of Amazon Web Services, at left, and Satya Nadella, the CEO of Microsoft. Tableau/Getty Images
  • A UBS report says that Amazon, Microsoft, and Google's clouds are threatened by a lack of IT talent.
  • That shortage of tech talent has been worsened by pandemic-driven demand for the cloud.
  • UBS analysts called the overall risk "moderate," but others warn a talent war is ahead.
  • See more stories on Insider's business page.

A new research report from UBS analysts, released Friday, points to a potential Achilles heel for the seemingly unstoppable forces of Amazon, Microsoft, and Google's clouds - all of which saw major growth during the pandemic.

According to UBS analysts, who spoke with 15 enterprise customers and cloud partners of the so-called Big Three, the second quarter of 2021 was the first in which they heard "consistent comments" of concerns over a dearth of IT talent. While UBS only rates it a "modest" risk for now, the analysts still say the situation warrants a close watch.

The major clouds all lean on managed services providers and IT partners to do much of the nitty-gritty of helping their customers move to the cloud. As cloud migrations accelerated during the pandemic, so did the need for such talent to help guide those major IT changes along - generating a demand that UBS warns may outstrip supply, which could in turn drag down the cloud business overall.

"The obvious risk to AWS, Microsoft Azure and Google Cloud is that customers are unable to move forward with planned migration projects because of a headcount shortage," the analysts wrote, "essentially showing the pace at which committed deals convert to go-lives and therefore consumption revenues for the Big 3."

Some cloud customers even told UBS that some of their projects are already seeing months-long delays as their IT partners worked through a backlog.

The cloud skills in question are also in-demand for customers, particularly those who don't have specialized staff of their own or haven't yet trained them for the cloud. Gartner vice president Sid Nag previously told Insider the research firm's survey found that over 40% of organizations are looking for third-party help with their cloud journey.

That means even if customers continue buying cloud services from Amazon, Microsoft, and Google, they won't start seeing the benefits of their investment until the technology is fully implemented. And any delays could raise further questions around the cost and value of cloud.

So the shortage of cloud talent sets off alarm bells for not just the Big Three, but also IT providers large and small who need the staff, and customers new to cloud computing. One UBS interviewee said that "the war for talent among the big cloud infrastructure partners is insane," and "both the customers and the [systems integrators] firms can't hire fast enough."

Another said that even some of the largest IT partners have been trying to acquire smaller, specialized firms to help shore up on talent. "We now regularly get approached by the global [systems integrators]," they said.

Indeed, analysts have long warned that a looming talent shortage is a threat to the Big Three.

"There's going to be more and more emphasis on the skills necessary for cloud adoption," Gartner vice president Lydia Leong told Insider in a March interview. "Everyone needs more talent in this ecosystem, and that holds true across cloud providers."

They've also suggested that Amazon, Microsoft, and Google could acquire smaller professional services firms to fill the gap in talent and meet demand - or even keep up with competitors.

"Heavy-duty workloads are moving to the cloud and that's right in the backyard of Redmond and Azure," said Wedbush Securities managing director Dan Ives, making IT partners all the more necessary for helping AWS hold its lead over Microsoft.

Ultimately, UBS acknowledges that Amazon, Microsoft, and Google continue demonstrating strong momentum that seems unlikely to abate any time soon - but the talent shortage is still a very real issue. And to Gartner's Leong, it's a problem that won't be solved for the Big Three overnight.

"This is one of the things where we see our clients most challenged," she said.

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