Given the scale and complexity of the endeavor, it’s not surprising that only a few companies are in any position to entrench themselves as the market leaders in the space.
Indeed, by far the most prominent player in the industry today is Amazon
. The company took a huge first-mover advantage back in the early 2000s, when the firm created its first e-commerce-as-a-service platform, Merchant.com.
The business then went on to dominate the sector, with its AWS segment providing over 200 services, including server farms, cloud computing, and network and developer tools. Amazon now accounts for 33% of the $180 billion cloud market
, and isn’t likely to give that up anytime soon. In fact, its cloud wing grew 37% the last quarter, and accounts for $18.4 billion
– or 16% – of the company’s net sales mix.
However, coming in a distant second to AMZN
is Microsoft (MSFT)
, with its Azure and Intelligent Cloud offerings. The tech company – most famous for its software and personal computers – seems a perfect fit for the cloud, and yet MSFT only takes 22% of the available market
Most surprising of all, perhaps, is how far Google
– or its parent company, Alphabet – lags behind both Amazon and Microsoft. Indeed, at the present time, Google Cloud takes a rather paltry slice of the pie, at just 9% of the available share.
But that might be about to change.
In its latest quarterly filing, GOOG disclosed that it had spent an astonishing $10 billion on capital expenditures over the last three months. That outlay represented a 65% increase from the equivalent quarter a year ago, with its investing activity expanding from just $5.94 billion in the first quarter 2021
, to $9.78 billion this time around.
There’s no doubt that an uptick in spending like that is significant. So, is Google finally getting serious about its cloud segment? And what does it mean for the company going forward?
Google Cloud Growing Faster Than AMZN & MSFT
It’s fair to say that Google took its eye off the prize when competing against its rivals in the cloud computing game.
The company is the lone business of the big three whose cloud operation fails to make any profit, with AWS and Microsoft’s Intelligent Cloud
both raking in more than a combined $14 billion between them.
A quick glance at Alphabet’s balance sheet makes this point crystal clear – only one of its three segments, the Google Services wing, is actually profitable. The other two segments – Google Cloud and Other Bets – are loss making enterprises.
Google Services delivered an operating income of $22.9 billion in the last quarter, whereas Google Cloud and Other Bets lost a respective $931 million and $1.16 billion each.
That said, this doesn’t mean Google Cloud is a hindrance to the firm in any way. On the contrary – with a 44% annual cloud revenue growth rate, Google is growing its cloud business much faster than either AMZN’s 37% or MSFT’s 26%.
In a bid to really start challenging in the space, Google has made a number of critical acquisitions already this year. The company began 2022 by buying out Siemplify
, a major name in the security orchestration, automation and response field.
The brand will enable Alphabet to better help companies manage their cyber-security and threat response protocols, and improve their options if a breach does take place.
Building off the back of the Siemplify deal, GOOGL also made a $5.4 billion move for Mandiant
, another security firm specializing in threat-intelligence and cyber-espionage
. Mandiant brings with it its 600 consultants and 300 intelligence analysts, and will complement Google’s efforts to deliver end-to-end security to every aspect of its cloud environment.
Summary: How Much Does Google Spend On R&D?
While its convenient to think of the cloud as being composed mainly of the big three of Amazon, Microsoft and Google, these firms are pretty much limited to their involvement to the Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) field of operations.
However, there’s a lot more to the cloud than just that. Smaller enterprises such as IBM and Rackspace are important players in the Hosted Private Cloud
space, while the Private & Hybrid Cloud segment is marked by the presence of Dell and HPE.
With so many diverse and rapidly growing sub-sectors to the industry, it’s not unthinkable that Google could use its preeminent position as the world’s most powerful IT company to make inroads into these less-well-known cloud niches.
In some ways, it’s already doing this. Google Cloud is part of the Data Cloud Alliance
, and is working with an array of other businesses to solve “modern data challenges” with some of the “fastest-growing enterprise data platforms today”.
How all this unfolds will remain to be seen. But with a willingness to invest so much capital into the venture, the future’s looking bright for Alphabet and its cloud expansion.