Google considered killing its cloud: report

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Google considered killing its cloud: report

Google's top leaders weighed doubts less than two years ago about the potential for profitability of its massive cloud business. They ultimately decided to double-down on the Internet giant's cloud strategy, but there may be funding consequences if Google Cloud Platform can't surpass Microsoft Azure in the market within four years, according to a report published by The Information.

A "monthslong debate" in which Google CEO Sundar Pichai, Alphabet CFO Ruth Porat, and former Alphabet CEO and Google founder Larry Page, at least to some degree, pondered entirely exiting the cloud infrastructure business ended at the start of 2018 with them instead setting an ambitious goal to surpass Microsoft and possibly Amazon Web Services by 2023.

While the world's third-largest cloud provider committed to investing the substantial capital needed to expand its infrastructure footprint, there's talk in the ranks that failure to meet the 2023 goal will result in funding being pulled from the expensive endeavor, the tech news site reported.

A Google spokesperson, however, denied the veracity of The Information reporting, without elaborating.

"Reports of these conversations from 2018 are simply not accurate," the spokesperson said in a statement shared with CRN.

Alphabet sees GCP and Google's G Suite productivity apps as divisions carrying the potential to deliver on a long-standing hope of establishing a substantial source of revenue beyond advertising, which still accounts for just about all Alphabet's more than US$40 billion in annual revenue.

At the same time, being stalled in third in the cloud market has not sat well, and there's been disappointment that previous targets set under the leadership of former Google Cloud CEO Diane Greene have fallen flat. Larry Page in particular has maintained doubts about offering traditional enterprise IT services and the baggage that brings of building out sales and marketing teams—not a traditional Google strength. He's openly wondered how Google can differentiate its cloud offerings from AWS and Microsoft, The Information reported.

Just before Greene was replaced by former Oracle president Thomas Kurian, the Alphabet leadership told GCP staff they had approved the five-year plan budgeting $20 billion in spending on a data center buildout and other outlays needed to expand GCP capacity, The Information reported.

One anonymous source within the company who attended briefings in 2018 told the publication that the leadership didn't make clear what the fallout would be of not at least overtaking Microsoft by 2023 to seize second place in the market.

But that source said colleagues hold the view that Google will stop investing significantly in GCP if the market-standing milestone is not met by that date. The senior executives believe that if Google cannot scale sales of the fundamental cloud compute and storage services to a top-two position, GCP might never realize profits.

One large GCP partner told CRN there's no need to worry about Google's long-term commitment to its cloud business, dismissing any timelines and conditions as a motivational tool.

"Nothing will happen," that partner said regarding the 2023 target. "This is known as a Big Harry Audacious Goal, and it's a wonderful sentiment to the market and partner community."

It's important to instill a sense of urgency, that partner said. "Thomas [Kurian] and company are creating just that."

Earlier this year, Google unveiled plans to scale its cloud computing network infrastructure by expanding the number of GCP regions to 23, with new data centers in Seoul, South Korea, and Salt Lake City, Utah.

The three-zone Seoul region will go online early next year, followed by the Salt Lake City facility, also with three availability zones. Google also recently announced its seventh U.S. and European regions.

In addition to rapidly building out infrastructure around the globe, Google is tripling its cloud sales force and hiring new engineers, looking to add fuel to what is undoubtedly a fast-growing business. The company said it invested $9 billion in capital expenses in 2018, and another $13 billion this year.

But pouring cash into Google Cloud, which is the top driver of expanding headcount, is taking its toll on financials, Google admitted in a Q3 earnings call this past October.

The investment dragged down profits in the quarter that ended Sept. 30 as capital expenditures climbed from $5.28 billion the previous year to above $6.7 billion, Porat told investors. Profits subsequently fell year-over-year from $9.2 billion to $7.1 billion.

In setting a timeline, Google has ramped pressure on product teams, asking them for the first time to develop multiyear strategic plans, The Information reported, citing a former GCP employee.

While Google doesn't break out GCP revenue, a Synergy Research study after Q3 earnings were released in October estimated the provider was closing in on 10 percent of the Infrastructure-as-a-Service and Platform-as-a-Service market. AWS maintained roughly 40 percent share of that public cloud spend, and Microsoft has moved toward 20 percent, Synergy found.

But it's a fast-growing overall market, consistently notching year-over-year growth around the 40 percent mark—a provider can scale revenue without taking share and standing from competitors.

This article originally appeared at crn.com

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