It’s been a rollercoaster ride at Twitter recently. News of layoffs with “50% higher than legally required” severance pay has dominated the news. But Twitter’s new owner, Elon Musk is also trying to optimize cloud infrastructure costs.
Some of the tactics used include refusing to pay a $70 million AWS bill and $8 million to a software services company. More on that below.
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Does Twitter Still Run On AWS?
In December 2020, Twitter announced it would use Amazon Web Services (AWS) to power its main timeline. At the time, this was a “multi-year” agreement that did not disclose any figures.
Twitter CTO, Parwal Agrawal, said in a statement that Twitter and AWS would collaborate to scale the social media platform’s infrastructure, ship features faster, and grow its portfolio of services, among other initiatives.
The Information revealed in March 2023 that the deal was for a five-and-a-half-year contract worth $510 million. Moreover, it disclosed that Twitter had agreed to pay AWS regardless of whether it used that capacity or not. AWS was unwilling to renegotiate.
What AWS Services Does Twitter Use?
Nowadays, Twitter doesn’t use the AWS capacity for real-time timelines. Instead, the social media platform uses AWS for Spaces and other services. Twitter could be using the Google Cloud Platform (GCP) to run timelines. It currently has a $1 billion contract with Google, which it committed to before signing with AWS.
According to details in Twitter’s contract with AWS, Elon Musk’s social media giant also planned to use:
- AWS cloud infrastructure to complement Twitter’s on-premises capability, enabling the company to scale its real-time service worldwide
- Amazon Elastic Compute Cloud (Amazon EC2) service using the Arm-based architecture AWS Graviton2 instances to run its cloud-based workloads
- With AWS container services, Twitter builds and delivers new features and services consistently across its hybrid infrastructure
- Amazon CloudFront, AWS’s ultra-fast content delivery network (CDN) service to distribute data, applications, videos, and APIs at low latency and high speeds to customers across the globe
- Amazon DynamoDB, which is the AWS key-value database that offers single-digit, millisecond performance at scale.
Makes you wonder how much Twitter pays AWS for this.
How Much Does Twitter Spend On AWS Infrastructure?
According to The Information’s $510 million reveal, that would be around $7.73 million per month in AWS spend.
Exactly how much Twitter spends on AWS may still be a closely held secret. What was open is that the then-new Twitter boss, Elon Musk, wanted to cut $1 billion in cloud infrastructure costs by November 7, 2022.
What Are Twitter’s Cost-Cutting Plans?
The company plans to save $1.5 million to $3 million through cloud services and server capacity, according to a Slack message titled “Deep Cost Cuts”.
Several sources told Bloomberg that Twitter had turned off some extra server capacity it uses when it receives excessive traffic. And as a result, there were some disruptions to the platform, but they were short-lived.
Twitter has also tried renegotiating contracts with AWS, Google Cloud, and Oracle. But the vendors have been unwilling to renegotiate.
Despite this, Musk tweeted that the 2022 cloud infrastructure budget cuts were on the way to reducing non-debt expenses from $4.5 billion to $1.5 billion in 2023.
However, the social media platform did not resume paying for Google Cloud services until late June 2023. According to reports, Twitter would pay Google a total of $300 million in 2023 as part of a multi-year deal worth approximately $1 billion.
In terms of revenue generation, Twitter is exploring:
- Increasing subscription revenue through features such as Twitter Blue (including showing verified users more Tweets than non-subscribers).
- Attracting more content creators by sharing revenue with them when Twitter posts an ad on their content.
But Twitter is still in the thickets.
Is Twitter Profitable Now?
As of July 2023, Twitter is still not profitable. In mid-July 2023, Elon Musk reported the company was still not cash-flow positive.
To complicate things further, Musk added that ad revenue had plummeted by 50%. At the same time, the company was paying up to $1.5 billion a year in debt payments.
In 2021, Twitter said it spent $1.8 billion as its cost of generating revenue and had total costs and expenses of $5.573 billion.
The same year, Twitter generated $5.08 billion in revenue, a 37% year-over-year growth. This revenue reflected an adjusted operating margin of 5% (and -10% which includes $766 million in litigation expenses).
The only times Twitter was profitable were back in 2019 and 2018 when it made $1.4 billion and $1.2 billion in net income, respectively.
Elon Musk And Twitter’s AWS Bill
To achieve that $1 billing in savings, Twitter already shut down one data center and fired the engineers who managed it. As we explained here, firing staff and shutting down a data center may not be as effective as intended, especially if the fundamentals, such as Twitter’s unit costs, aren’t working right.
As of March, AWS threatened to stop paying Twitter’s advertising fees because the social media platform owed it $70 million. Twitter wasn’t behind on Google Cloud payments.
A revenue downturn continues to affect the company. Thus, it needs to reduce cloud infrastructure costs to sustainable levels now more than ever.
Understand, Control, And Optimize Your Cloud Costs With CloudZero
Twitter can cut jobs, reduce server capacity, and delay payments to reduce its spending. But at what cost?
A better approach may be to assess — and perhaps decrease — the cost per 1,000 tweets, or quantify the ROI on the paid checkmark feature. This is unit economics for SaaS companies.
Want to understand how much you spend to support a particular customer, feature, team, project, etc?
With this, you can identify the people, products, and processes driving your costs. Then you can tell exactly where to minimize costs and where to boost investment to maximize returns.