Google’s cloud coming of age

  • Inaugural event to set the tone for Google’s enterprise invasion
  • All eyes trained on new cloud chief, the cofounder of VMware
Google’s cloud coming of ageTHIS week, I find myself back in San Francisco, part of the famed Silicon Valley area that houses some of the largest technology companies in the world.

 
Tech activities, launches and conferences routinely happen here, and many eyes were trained on what Apple Inc announced at its Cupertino, California-based headquarters on March 21 – yes, a new smartphone dubbed iPhone SE.
 
But no, I didn’t come to cover that event. I’m here for the Google Inc’s inaugural two-day global cloud computing conference, Google Cloud Platform Global User Conference 2016 (GCP 2016).
 
Company officials said Google had hosted seven cloud conferences in various cities last year, but that this is the first time it is making it global.
 
To me, this conference is more significant than Apple’s announcement because it’s a first for Google, while Apple’s mid-cycle launch, to put it bluntly, has become quite routine.
 
After all, Google is one of three global giants in the world of public cloud computing, the other two being Amazon Web Services Inc (AWS) and Microsoft Corp.
 
I have been writing and covering cloud conferences for several years now, from VMware Inc’s VMworld and Salesforce.com’s Dreamforce to AWS’ re:Invent, but the two I’ve not had the pleasure of covering are Google and Microsoft.
 
So I’m excited about finding out exactly what Google’s top cloud executives are up to.
 
Cloud computing has come quite some way since it first entered the public consciousness as a new way of providing computing, back in 2008 or so.
 
Its initial users were mainly startups which did not want to be bogged down with having to buy server compute, storage and networking capabilities, but instead wanted to concentrate on software coding and development, as well as go-to-market strategies and plans.
 
By leasing cloud computing from some of these players, they got exactly what they paid for.
 
Early adopters include Netflix, Dropbox, Spotify, Instagram, Pinterest and Twitter, to name just a few.
 
While it made perfect sense for startups to go with public cloud providers though, larger traditional enterprises were quite hesitant. In 2011, Symantec Corp conducted a survey that suggested poor cloud adoption amongst larger companies in the United States, according to a Reuters report.
 
“…the lack of expertise among IT staff and security were amongst the No 1 concerns of organisations mulling a move to the cloud, with more than half of respondents worried about malware outbreaks, hackers stealing their data, and insiders sharing sensitive information,” Reuters noted.
 
But that was five years ago, and a lot has happened since then. Today, the cloud is much more advanced, secure, and efficient, bringing many great advantages to businesses, amongst them cost reduction, business agility, and speed-to-market.

Chief information officers (CIOs) today are more willing to try out the cloud, especially when they’re faced with increased competition and have to innovate quickly – while keeping costs manageable.
 
Cloud earnings
 

Google’s cloud coming of age

 
Sentiment has got so upbeat that AWS cloud chief Andy Jassy even declared the cloud as the “new normal” for enterprise computing.
 
That may be marketing-speak, but AWS’ proof is really in its revenue pudding. Since decoupling its cloud computing revenue numbers from parent Amazon.com Inc’s performance, AWS has been showing marked signs of growth year-on-year.
 
In its latest earnings report, Amazon.com said its cloud arm almost achieved an annual revenue run rate of US$10 billion. Its fourth-quarter revenue stood at US$2.4 billion and sales of its cloud services grew 69% year-over-year, with profit margins coming in at 28.5% or US$687 million.
 
Its operating profit has impressively climbed from 21.4% in the second quarter of 2015 to 25% in the third quarter, and to the current 28.5%.
 
Similarly, Microsoft chief executive officer Satya Nadella (pic below) firmly declared that the cloud is at the centre of its strategy, and this move looks to be paying off.
 

Google’s cloud coming of age

 
During Microsoft’s earnings call in January, Nadella told analysts that despite slower growth in its traditional software business, companies are turning more to the cloud and this proved to be a bright spot for the Redmond, Washington-based giant.
 
“The enterprise cloud opportunity is massive, larger than any market we have ever participated in,” Nadella said during the conference call.
 
What’s more interesting was that despite the fall in revenue and profit, Microsoft’s stock jumped 5% after its latest earnings were released, signalling that investors believe that its broader cloud strategy is working.
 
According to Reuters, Microsoft’s cloud business – which includes its Azure cloud infrastructure and services business along with its hugely popular Office 365 cloud productivity suite – is on track to record US$9.4 billion in annual revenue, up 15% from the US$8.2 billion a year before.
 
Google’s play
 
While AWS and Microsoft have been making waves with their cloud offerings, Google has fallen somewhat behind.
 
Despite having the second best growth figures year-on-year, it is the fourth player overall behind AWS, Microsoft and IBM SoftLayer, according to Synergy Research Group.
 
Google’s public cloud service combines its various cloud businesses – Google for Work, Google Apps and the Google Cloud Platform (GCP), its infrastructure-as-a-service (IaaS) compute engine – into one division.
 
Besides its core search and advertising business, which registered close to US$75 billion revenue in 2015, Google has been providing the aforementioned cloud services to companies, albeit in a low-key way – something that its senior vice president of technical infrastructure Urz Hölzle has readily acknowledged.
 
Speaking at Fortune’s Structure conference last November, he conceded that the company is coming from behind in a market where AWS and Microsoft (via Azure) have greater mindshare with corporate accounts.
 
“Our reputation lags reality, but will catch up,” Hölzle said, alluding to product announcements that are “coming soon.” However, he did not elaborate.
 
Meanwhile, Google chief executive officer Sundar Pichai (pic below), in a February earnings call, said Google expects to see significant traction in its public cloud business next year.
 

Google’s cloud coming of age

 
Google pioneered many of the technologies that underlie a public cloud, and has been using them for its own operations, from search to YouTube, for nearly 20 years.
 
“We can take this computing power and optimise it for all customers, and we are now able to bring this to bear just as the movement to cloud has reached a tipping point,” Sundar said, according to Fortune.
 
The road ahead
 
However, Google faces several challenges, according to analysts. The first has to do with the fact that its offering is less polished at this point, Gartner’s cloud lead analyst Lydia Leong told Network World.
 
She said Google’s internal platform was not designed to be a set of ‘composable’ web services; it was built for Google. AWS, on the other hand, built its cloud from scratch to sell as a service.
 
“Externalising it in a way customers can consume has been difficult,” Leong said of the Google Cloud Platform or GCP.
 
Google has also suffered from the problem of not having “bleeding-edge customers while having less in terms of breadth of services to offer compared with its rivals,” she said.
 
“I’ve never felt that Google did not understand the enterprise,” but it “never seemed to have the institutional will to go after it in depth.”
 
Gartner analyst and research director Michael Warrilow agreed, saying that GCP team is still in the rudimentary stages of learning to engage with enterprise and mid-market customers.
 
Speaking to Digital News Asia (DNA) before the Google event, he said, “Google needs to expand its sales, solutions engineering and support capabilities.
 
“Also, its locations are limited at this time, and the closest location to Asia is Taiwan. Other than that, there is a central US region and a European region, located in Belgium,” he added.
 
Making a call on the cloud market is tough because most of the industry players are not transparent with their numbers.
 
Forrester Research said that since AWS has begun reporting actual revenue, it expects Google and Microsoft to follow suit this year.
 
“IBM, VMware and the other public cloud providers had better take notice and start reporting clear, distinct revenue from public cloud platform services.
 
“They must stop lumping their public clouds in with consulting, implementation, and on-premises private-cloud- technology sales,” the research and analyst firm said.
 
“The market wants to know if vendors can actually deliver sustainable, profitable, efficient, and transparent cloud services … because CIOs and investors will demand visibility and will punish providers that hide behind services revenue and other obfuscations,” it added.
 
Bright spots
 
Still, few would bet against the Mountain View, California-based Google coming from behind to challenge AWS and Microsoft.
 
Google certainly has the technical chops and financial muscle to mount such a challenge – the latter can be seen in how it has repeatedly reduced the prices for its cloud offerings, twice in 2014 and once again in 2015.
 
Gartner also ranked Google as the third best public cloud player and this puts it ahead of VMware and even IBM’s SoftLayer, with the analyst firm arguing that “Google has a comprehensive vision and extensive experience with how cloud-native applications are developed and managed through the life cycle.”
 
Google’s cloud coming of agePerhaps more importantly, Google bought Bebop, a cloud business application startup set up by VMware cofounder Diane Greene, for US$380 million last November.
 
Greene (pic) now heads up Google’s cloud arm, and industry watchers are generally upbeat about her leadership capabilities and hands-on enterprise experience, which observers say she would use to bring her new company up to speed on how to sell to enterprises.
 
Finally, Google has also managed to snare a few marquee customers, the most recent and highly publicised of which was Apple.
 
The Cupertino company has moved part of its iCloud services onto GCP, which some consider to be a real coup given that the two companies are rivals in the smartphone operating systems space.
 
All these bode well for Google as it primes itself for an invasion of the cloud enterprise space.
 
Edwin Yapp reports from Google Cloud Platform 2016 San Francisco, at the invitation of Google. All editorials are independent.
 
Related Stories:
 
AWS burnishes its enterprise credentials with host of goodies
 
Pressure from all sides to adopt the cloud: CIOs
 
The cloud: Three questions all businesses should ask
 
Big cloud players’ price-slashing threatens smaller players: IDC
 
 
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