Airbnb Details Road Map to Lower Cloud Costs

Earlier cloud-budgeting actions prepared home-sharing giant for current economic environment, says director of cloud infrastructure

Airbnb posted its most profitable year to date with $2.88 billion in revenue for the quarter ended Sept. 30.

Photo: GABRIELLE LURIE/REUTERS

Moves by Airbnb Inc. to lower its cloud storage costs in the run-up to its December 2020 initial public offering have left it better prepared for the possibility of an economic downturn, the home-sharing company said. Analysts say its efforts offer a template to other companies looking to get spending under control as more IT shifts to the cloud.

The San Francisco company began investigating its cloud costs in 2019 in preparation for an IPO, said David Nagle, Airbnb’s director of cloud infrastructure, achieving savings of $63.5 million in 2020 over the prior year by closely monitoring its cloud usage, moving some of its data to lower-priced cloud services and working with Amazon.com Inc.’s cloud business, Amazon Web Services.

While Airbnb’s home-sharing business was severely affected by the Covid-19 pandemic, Mr. Nagle said the company’s cost-saving measures at the time—including cloud budgeting—prepared it for the current economic environment where its tech peers are laying off scores of workers or pausing hiring. A company spokesperson said it was able to cut cloud costs in 2020 by 27% compared with the year prior, and lowered its cost of revenue by 26% to $666.3 million, partly by revamping its cloud budget.

Airbnb Tuesday posted its most profitable quarter to date with $2.88 billion in revenue for the quarter ended Sept. 30.

Many companies that have shifted their enterprise-technology tools to the cloud in recent years are similarly seeking to reduce their cloud costs, especially in the market downturn. Corporate cloud spending will moderate from recent highs, analysts say, as companies seek more discipline in that spending.

Mr. Nagle said Airbnb early on formed a cost efficiency team, which now has about seven people, dedicated to watching cloud costs “like a hawk.”

That allowed the company to determine which cloud services to use, including Amazon S3 Glacier, Amazon’s lower-cost storage service. “That reduced a significant amount of our storage costs right off the bat,” Mr. Nagle said.

Airbnb, one of Amazon’s largest cloud customers according to Amazon, also worked with the cloud provider to figure out what it was overpaying for. For example, the company replaced its homegrown data backup system with Amazon’s service at a price that is “almost free,” he said.

Mr. Nagle said Amazon also created a flat network, or one in which all servers are connected to a single network to minimize cost and maintenance, for Airbnb. Such a network had never been established for a customer of Airbnb’s size, he said, and required Amazon to adjust every machine in its own data centers.

To be sure, Airbnb receives a special level of service from Amazon’s cloud, said Tracy Woo, a senior analyst covering cloud at market research firm Forrester Research Inc., but other businesses can still follow its lead. Cloud providers have a vested interest in helping their customers spend less because they know cloud purchases are a long-term commitment, said Jean Atelsek, a research analyst at S&P Global Market Intelligence. 

Shaown Nandi, a director of technology at Amazon Web Services who works with customers on their cloud budgets, said that companies of all sizes can almost immediately lower their bills by using its Savings Plans, where they pay a lower rate upfront for a certain amount of cloud usage over one or three years, rather than paying for those services as they use them.

For large customers, cloud providers like Amazon offer yearslong contracts in exchange for sometimes significant discounts, said Raj Bala, a vice president and analyst covering cloud at IT research and consulting firm Gartner Inc. While such contracts can commit a customer to millions of dollars in spending a year, it shouldn’t stop them from optimizing how those dollars are used, Mr. Bala said.

For example, Airbnb has a contract with an unspecified data hosting provider to spend at least $1.2 billion through 2027, according to its November 2020 initial public offering filing. Airbnb’s primary hosting provider is Amazon Web Services, its filing states.

By putting its spending toward lower-cost cloud services it uses more often, Airbnb is allocating its cloud budget “in a smarter way,” Mr. Bala said. 

Write to Belle Lin at belle.lin@wsj.com

Corrections & Amplifications
S3 Glacier is one of Amazon’s lower-cost storage services. An earlier version of this article incorrectly said it was one of Amazon’s highest-cost storage services. (Corrected on Nov. 8)

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