Back in November 2015, Sundar Pichai, CEO of Alphabet and Google, wrote, “Only a tiny fraction of the world’s data is currently in the cloud – most businesses and applications aren’t cloud-based yet. This is an important and fast-growing area for Google, and we are investing for the future.”
Background and How Google Got Here
Over the past few years, Google has intensified its efforts to catch up with the leaders in cloud computing. A lot has been achieved through a combination of internal efforts, research and development, and acquisitions. Today, Google Cloud ranks third, after Amazon AWS and Microsoft Azure. Google has managed to double its market share from a just about 4% during the year 2015 to 8% in 2019. The worldwide public cloud market size is projected to be $350 billion by 2022.
Although Google Cloud has been earning revenue for Alphabet, it was only in early 2020, while announcing fiscal year 2019 numbers, that the revenue earned by Google Cloud was disclosed. During FY 2019, Google Cloud posted a revenue of $8.91 billion, a 52% jump over the revenue of $5.84 billion in FY 2018. While the revenue from Cloud made up only around 6% of overall revenue, it is a significant figure considering it is non-advertising revenue given Alphabet’s intent to solidify businesses beyond advertising.
Google Cloud reported revenue of $2.77 billion during Q1 2020 vis-à-vis $1.82 billion in Q1 2019. Cloud is now on a $10 billion revenue run rate. Its revenues consist primarily of revenues from Google Cloud Platform (GCP), G Suite productivity tools and other enterprise cloud services.
Google Cloud has entered a number of acquisition agreements to boost its offerings and product portfolio. Back in 2017, Alphabet CFO Ruth Porat spoke at a conference where she said, "the acquisitions that we’ve talked about really in particular fill in holes in cloud and that’s been really valuable.”
Among the companies acquired in 2018 were Cask Data, Velostrata and Xively. In late 2018, it was announced that Thomas Kurian would join as the new CEO, and the pace of acquisitions have continued. Elastifile, a provider of scalable, enterprise file storage for the cloud, was acquired in mid-2019. Another significant acquisition was Looker, a unified platform for business intelligence, data applications and embedded analytics, for $2.6 billion. In November, Google acquired CloudSimple, a leading provider of secure, high-performance, dedicated environments to run VMware workloads in the cloud. In February 2020, Cornerstone Technology was acquired to better help customers migrate their mainframe workloads to Google Cloud.
Beyond these acquisitions, Google’s parent company Alphabet is among the top research and development (R&D) spenders and a significant part of its R&D investment is directed towards emerging technologies, including cloud. The company spent 16.1% of its revenue on R&D in 2019, equivalent to $26.02 billion as compared to $21.42 billion in 2018.
“Our investments in deep computer science, including artificial intelligence, ambient computing and cloud computing, provide a strong base for continued growth and new opportunities across Alphabet,” said Pichai during FY 2019 results announcement. Google LLC was granted 2,102 patents in 2019.
Alphabet continues to add talent, something that the company has acknowledged in its earnings reports. “With respect to headcount, in 2019, Alphabet headcount grew by 20%, reflecting investment in key areas such as cloud.” During the Q1 2020, headcount was up 4,149 compared to the previous quarter.
The technology giant has been able to add some high-profile enterprises on its list of customers:
- The Home Depot
- Chicago Department of Transportation
- 20th Century Fox
- ABN AMRO
- Airbus Defence and Space
Google Cloud offers solutions across industries to improve efficiency and agility, reduce cost, participate in new business models, and capture new market opportunities.
Coronavirus and the Cloud
Amid the pandemic, Google Cloud has been assisting its customers to navigate COVID-19. Google Cloud is supporting the State of New York’s new online unemployment application system as it deals with a significant increase in demand: “Since the COVID-19 pandemic began, the New York State Department of Labor's unemployment insurance filing system has faced an unprecedented increase in volume—with peak weeks seeing a 16,000% increase in phone calls and a 1,600% increase in web traffic, compared to a typical week.”
HCA Healthcare and Google Cloud are working on a COVID-19 National Response Portal to promote data-sharing about the coronavirus and how it is spreading in an effort to help hospitals and communities prepare and respond.
Lloyd's Banking Group has entered into a strategic collaboration with Google Cloud, as part of its commitment to invest £3 billion to transform for success in a digital world.
“G Suite is helping Netflix and German manufacturer KAESER Compressors transition quickly to remote work,” said Pichai during the April earning call. There are more than 6 million paying G Suite customers globally.
Over these years, Google Cloud has made steady progress. It has emerged clearly as one of the major players in the space, factoring in the earnings reports of its parent company as promising revenue generator. This is just the beginning for Google Cloud.
Disclaimer: Alphabet Fiscal Year (FY) is January to December. The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.