Analysis: How far has Google Cloud come?

• Opportunities lie in pricing, artificial intelligence feature set; Asia the focus
• Companies are going multi-cloud and Google must adapt to capitalise

ANALYSIS: ABOUT six months ago, I reported from Google’s global annual cloud conference, Next 17, in which I said that Google was a company in a hurry, especially at wooing enterprise customers onto its cloud computing offering known as Google Cloud Platform (GCP).

There are two main reasons for this. For starters, it had been late to the cloud game, having trailed worldwide leader Amazon Web Services (AWS) Inc and age-old IT champ Microsoft Corp in terms of offering cloud infrastructure-as-a-service to businesses. AWS first started doing so in 2006 and Microsoft followed suit in 2008.

Google, of course had been born in the cloud but only began seriously challenging its rivals in 2015, when Urz Hölzle, Google’s senior vice president of technical infrastructure said selling cloud services into big companies is a priority for the Internet search giant.

Also, by hiring enterprise software veteran Diane Greene, Google signalled its intention to streamline its cloud operations and make a serious stab at the enterprise computing landscape.

Timing isn’t just the main motivator, as the other key driver is future revenue prospects for Google. For as long as we can remember, Google’s advertising business has been unassailable. But from a growth perspective, it hasn’t been growing greatly in the past few years.

In its Q1, 2017 earnings report, Google declared that its advertising division’s revenue in the three months ending March 31 has grown a modest 18% year-over-year (y-o-y).

Meanwhile, under the ‘Other’ category filing, which many analysts believe is where Google’s cloud turnover is parked (Google does not break out specific cloud revenue in its reports), revenue jumped to US$3.1 billion from about US$2 billion or about 49% (y-o-y), for the three months ending March 31.

This suggests the Mountain View, California-based search giant’s potential earnings for years to come will stem from growing its cloud business further. In fact, its cloud business may even eclipse its ad business, something Hölzle had candidly predicted may happen in a mere three years’ time.

“The goal is for us to talk about Google as a cloud company by 2020,” Hölzle was quoted as saying in Business Insider in 2015.

This prediction may sound unbelievable but it isn’t the first time such a bold statement has been made by a cloud computing executive.

Andy Jassy (pic, above), chief executive officer of AWS had similarly said this in 2014, when he predicted that AWS had the potential to be the largest business for its parent company, Amazon.com Inc, in the long term, which says a lot given that its retail parent turned over US$70 billion in sales in 2014.

 “We’re extremely pleased with our business and our progress,” Jassy declared. “We believe that AWS has the potential to be the biggest business for the company, and so we will continue to invest.”

Catching AWS in five years?

Google may have come late to the cloud dinner party but given its financial might, brand and brains, as well as its penchant for innovation, this means that it has to be taken seriously, especially when Greene had declared that it was “dead serious” about the cloud business in 2016.

The hiring of Greene (pic, above) was widely acknowledged as a right step. Almost two years into the job, she has definitely made progress, as many analysts, including myself, feel that she has done well streamlining a lot of its enterprise products and services under one roof and reclassifying them to face enterprise customers in a more coherent manner.

In those two years, she has also made some important gains in terms of customer wins. There were customers won in 2015, and those unveiled in 2016 including Lloyds Banking Group Plc, Spotify Ltd, Home Depot Inc, The Walt Disney Company and even Apple Inc, widely regarded as one of Google’s stiffest competitors.

Just before Next 2017 got underway, it announced a US$2 billion deal (over five years) with social media giant Snapchat's parent Snap Inc, which just debuted successfully on the New York Stock Exchange.

Others include consumer retail giant Colgate Palmolive Company; telco operator Verizon Communications Inc, online marketplace eBay Inc and HSBC Bank Plc at Next 2017, arguably its highest profile financial service industry customer to date.

So full of confidence is she in Google’s cloud business that Greene in April declared that it could beat industry leader AWS in about five years from today.

“I think we have a pretty good shot at being No 1 in five years,” she said, telling a Forbes’ CIO Summit. “I actually think we have a huge advantage in our data centres, in our infrastructure, availability, security and how we automate things. We just haven't packaged it up perfectly yet,” she said, but didn’t explain how exactly it would achieve these plans. 

Bold words from an ambitious veteran and something you would expect from a top Google executive playing catch up, no doubt.

While not discounting this could happen in the future, I believe some objective numbers from Gartner may put this ambition into better perspective.

According to the research firm, Google is a distant fourth in the cloud IaaS market, trailing AWS, Microsoft and the new entrant in third place Alibaba Cloud.

Gartner notes that Amazon is the clear leader in the IaaS market with 44.2% of the market; Microsoft secured the No 2 position with 7.1%, while Alibaba Group Holding Ltd, which runs Alibaba Cloud stands at No 3 with 3%. Google Cloud came in at No 4, with 2.3% market share.

Similar numbers were crunched by another firm, Synergy Research, which pegged IBM SoftLayer as third in market share and Google Cloud as fourth.

However, from a growth perspective, Google fared well, growing its estimated revenue of about two times from US$250 million to US$500 million over the previous year, Gartner noted. But the fastest growing cloud player is Alibaba Cloud, which grew at 127% compared to its previous year, Gartner added. 

“Google’s ability to sell to a broad range of customers has improved significantly over the past year – a visible impact from recent deeper investments in GCP, Gartner noted in its latest oft-cited industry report, Magic Quadrant for Cloud Infrastructure released in June.

Gartner argues that Google positions itself by selling what it has developed as innovative advanced services internally before offering them to cloud-native companies wanting to

to ‘run like Google.’ It’s now however, turning its attention to winning customers with traditional workloads and IT processes as well.

“Gartner clients typically choose GCP as a secondary provider rather than a strategic provider, though GCP is increasingly chosen as a strategic alternative to AWS by customers whose businesses compete with Amazon, and that are more open-source-centric or DevOps-centric, and thus are less well-aligned to Microsoft Azure.”

But Gartner also warns that its feature set and scope of services are not as broad as that of the market leaders.

The company is trying to close the gap in this area but it is also pursuing what Gartner calls innovative and differentiated platform capabilities, such as its BigQuery analytics and Cloud Spanner distributed database, and the speed at which its features come to market continues to accelerate.

“Google has only recently begun to build an ecosystem around its IaaS capabilities, which significantly heightens the challenges of adopting GCP,” the report argued.

Next page: Gaining ground in Asia