Mobile search and YouTube may have been the main drivers of Alphabet Inc.’s (GOOG) earnings yesterday but cloud is fast stepping up to become a major revenue stream for the company. Google CEO Sundar Pichai said that the company expected to be one of “largest areas of investment and head count growth in 2017”. His statement is not surprising when you consider that Google’s cloud platform drove most of the growth in Google’s Other Revenues segment last quarter. (See also: The Business Of Google).
Research firm Gartner estimates that cloud services market will be worth $208.6 billion in 2016. Google had a 4% share of the cloud market in 2015 and was a distant fourth behind market leaders Amazon.com Inc. (AMZN), which had a 31% share and Microsoft Inc. (MSFT), which was responsible for a 9% market share.
But the company has been taking steps to rectify that situation. It hired Diane Greene, co-founder of VMWare, Inc. (VMW), last year to rethink cloud strategy. The company announced significant wins, such as one with Apple Inc. (AAPL), earlier this year and recently announced the creation of a separate cloud division that corals existing company products, such as Google Docs, along with the company’s cloud offerings to provide a stack of services to corporate and consumer clients. (See also: Google Expands Cloud And Iaas/Paas Platforms).
It has also ramped up spending on infrastructure, such as undersea cables. During the call, Pichai said Google was focused on creating an open cloud. It has already released Kubernetes, an open source software that enables cloud management across multiple providers (including that of its competitors).
However, the company will have to work hard to catch up with industry leaders Amazon and Microsoft. It does not have Amazon’s head start in the cloud market. It also does not have Microsoft’s established network of enterprise relationships that can be leveraged for deals. Based on user reports, the company also offers a limited breadth of Service Provisioning or the level and types of services provided in the cloud as compared to Amazon and Microsoft.