Google/cloud: third place is good enough

Cloud computing services are such an effective money spinner for Amazon they sustain multiple expensive experiments elsewhere in the business. Amazon’s AWS unit contributed more than $18.5bn in operating profit last year. Yet at Google the same business lost over $3bn. Plans to raise prices will not close that gap.

From October, Google intends to increase rates for many server, storage and network products. The move suggests Google believes it is better to compete on services than prices.

Like Facebook, Google is on the hunt for sources of revenue beyond advertising. Cloud is a good bet. Total enterprise spending on cloud services reached a record $178bn last year, according to Synergy Research Group, up more than a third on the previous year.

The global shift to remote data storage means high growth is expected to continue. Within Google, the cloud division accounted for over $19bn in revenue in 2021, up 47 per cent on the previous year. That beat growth at both large rivals and parent company Alphabet.

Yet Google is still a distant third to AWS, which has 31 per cent of the market, and Microsoft, which has 21 per cent. Amazon had a first-mover advantage. Microsoft boasts existing product sales relationships with large customers.

Catching up means Google must spend heavily on data centres, real estate and staff. Adding more services explains the recent $5.4bn deal to buy cyber security company Mandiant. But it also has to hustle for deals. Low prices and flashy artificial intelligence tech may attract initial interest. But sustained business is more likely to come from selling services packaged with other Google products or offering ways for customers to access data across multiple clouds.

Even after prices rise, the scale of spending suggests profitability is some way off. Ruth Porat, chief financial officer, says Google will keep investing “aggressively”. Catching up to rivals with equally big pockets may be impossible. But third place in a sector growing at this speed is still a worthwhile pursuit.