Published on the 05/05/2023 | Written by Heather Wright

The current AI boom is bolstering SaaS growth in what is good news for FAANGs – or should that now be MAMAAS? – as they see revenue growth slow and SaaS companies in general see mixed fortunes.

A recent Gartner report suggests increasing use of generative AI and other emerging technologies, including Web3 and dare we say it, the metaverse, is helping drive cloud spend for enterprises.

A separate poll from the analyst firm found 45 percent of the more than 2,500 executives surveyed said ChatGPT has prompted an increase in AI investments.

“This change will ignite a wave of innovation and replacement in the cloud platform and application markets.”

For many tech companies, the push has come at a good time: It’s been tough times for many recently, with slowing revenue growth. (Let’s be clear, however, that for many it is merely a case of revenue growth slowing – they’re still cracking returns which would have most other companies jumping for joy.)

Two of the original FAANGs, Meta and  Alphabet (or Facebook and Google as they were) and Microsoft – part of the new MAMAAS group – have seen improving fortunes in the latest round of financials.

Meta reported a return to sales growth after three consecutive quarters of decline, with revenue up three percent to US$28.6 billion for the first quarter of calendar 2023. And it’s forecasting improved revenue for the current quarter too, with a forecast of $29.5 billion to $32 billion.

Alphabet also bet expectations pocketing US$69.8 billion in revenue for the quarter – also up three percent year on year, though net income was down to $15 billion. The company also posted its first profitable quarter on record for the Cloud business, with operating income of $191 million on $7.4 billion in revenue.

Over at Microsoft, growth from Azure and other cloud services slowed to 27 percent in its Q3 2023 figures, down from 31 percent the previous quarter. It still saw revenue up seven percent to $52.9 billion, ahead of expectations, with net income up nine percent yoy to $18.3 billion.

All three are part of the newly coined ‘MAMAAS’ group, a term proposed in recognition of the changing fortunes – and names – of some the original FAANG group, which began as FANG with Facebook, Amazon, Netflix and Google, before becoming FAANG in 2017 with the addition of Apple.

Now, with Netflix no longer quite the power house it was, it’s been ousted from the group, while Microsoft, whose valuation has topped US$1 trillion is in. Hence, MAMAAS – Meta, Amazon, Microsoft, Apple, Alphabet and Salesforce.

Recently reported growth comes against a backdrop of massive job cuts in what Mark Zuckerberg has termed a ‘year of efficiency’. Those job cuts have been hitting home for local teams working for the companies too. Microsoft cut its entire FastTrack for Azure team in New Zealand last month, with AWS also laying off local staff – though both companies are gearing up to open local cloud computing regions.

In Australia too, there have been layoffs by big tech companies, though exact numbers are unclear.

Losing some SaaS 

SaaS companies are facing some challenging times. After pulling big profits and growth when the pandemic made work from home the order of the day, they’re now seeing their numbers decline in the face of a changing economy with inflationary pressures, tighter capital and declining valuations.

There’s also the added challenge of changing investor expectations, as the pressure comes on for profitability, not just growth.

That’s seen companies like Salesforce under pressure to cut costs.

It slashed 10,000 jobs, but like all good MAMAAS it has beaten expectations in recent financials, logging a 14 percent increase in revenue for its most recent quarter, hitting $8.4 billion. The  company is also forecasting full year revenue slightly ahead of investor expectations, and improving profitability in the year ahead.

But that growth is lower than previous years. In 2022 it logged 22 percent growth. Fiscal 2023 saw a drop to 18 percent. And the new fiscal year?  Salesforce is expecting just 10 percent growth.

Sid Nag, Gartner vice president analyst, says providers are facing demands to redesign SaaS offerings for increased productivity, leveraging cloud-native capabilities, embedded AI and composability – particularly as budgets are increasingly driven and owned by business technologists.

“This change will ignite a wave of innovation and replacement in the cloud platform and application markets,” Nag says.

The cloud space is forecast to continue to see big growth. Gartner says worldwide end-user spend for public cloud is forecast to grow 21.7 percent to US$597.3 billion this year, up from $491 billion last year as cloud drives the next phase of digital business and companies pursue disruption through emerging technologies.

Hyperscalers, most notably Amazon, Microsoft and Google Cloud, are the biggest beneficiaries of the expansion accounting for 65 percent of cloud spend in Q1 2023, according to Synergy Research. (Amazon continues to lead at 32 percent, followed by Microsoft on 23 percent and Google on 10 percent. The next 20 companies combined account for 26 percent of spend.)

“Organisations today view cloud as a highly strategic platform for digital transformation, which is requiring cloud providers to offer more sophisticated capabilities as the competition for digital services heats up,” Nag says.

“For example, generative AI is supported by large language models which require powerful and highly scalable computing capabilities to process data in real-time. Cloud offers the perfect solution and platform. It is no coincidence that key players in the generative AI race are cloud hyperscalers.”