Google and Tech Rivals Tap Cash Reserves to Realize Cloud Ambitions

- Advertisement -


Alphabet invests in the company and other potential customers as they seek to bridge the gap with Amazon in a rapidly growing sector

- Advertisement -

The deals make Google the most aggressive of the many big companies seeking to gain ground on Amazon.com Inc.,

- Advertisement -

Cloud market leader. Microsoft Corporation

has also taken stake in several startups as part of deals that force them to use their cloud. And Oracle last year tried to buy a major stake in TikTok as part of a deal to let the China-owned social media app use its cloud service—and announced its biggest deal this month, with its Cited to promote cloud business. $28.3 billion acquisition of medical-records company Cerner Corporation

- Advertisement -

The emerging strategy has helped Google increase its market share in a vast and rapidly expanding industry that is critical to its growth. Google now claims 6% of the cloud market, up 1 percentage point from a year ago, though still far behind Amazon’s 41% share and Microsoft’s 20%.

“Nobody wants to ‘buy’ customers, but if you’re No. 3 or 4, you have to be creative,” said Holger Müller, an analyst at Constellation Research Inc., which focuses on enterprise technologies.

The investments underscore how the tech companies’ strong cash flow gives them a huge edge over smaller competitors in selling cloud infrastructure services, the core business of providing rentals, remote computing power and storage. Those companies can afford the large infrastructure investment needed to build a multibillion-dollar data center and subsidize the cost of moving customers to their cloud systems — helping to explain why three companies are two of the market’s largest. Why do you control the third part?

A spokesperson for Google Cloud said it has won massive customers with its capabilities, adding that the investment is part of their strategy. “In some instances, Google pursues investments and partnerships in lucrative growth areas, which is a common practice among many companies within the enterprise industry,” he said.

Alphabet investors see Google Cloud as its most promising growth area and its best chance to diversify beyond the online advertising business, which accounts for 80% of sales. The cloud unit, which began disclosing financial information in 2020, reported higher revenue in the first nine months of 2021 than in 2020, and is expected to grow 50% to $19.26 billion for the full year.

Those benefits outweigh the higher costs the company has spent aggressively developing the infrastructure and expanding its sales team. Google Cloud narrowed its operating loss from a year earlier to $2.2 billion in the January-September period.

Google’s deals cover customers in many sizes and regions. In a little over a year, it has invested $1 billion in futures-exchange company CME Group; Home Security Provider ADT . $450 million in Inc.

, and Spanish-language media company Univision and healthtech startup Tempus Labs Inc. undisclosed amount. All have signed long-term cloud computing contracts with Google.

Former Google Cloud executives said Mr Kurian played a central role in launching the investment strategy. Prior to their arrival from Oracle, Google prioritized the development of new technologies to lure customers over traditional sales. They revamped their approach to engage sales staff and sweeten performance bonuses.

Microsoft announces investment and cloud deal with food-delivery startup Grab Holdings Ltd.

In 2018, Mr Kurian thought of adopting a similar strategy to catch up with his rivals, said former Google Cloud executives. The investments were designed to give companies one more reason to choose Google over rivals and convince them that Google was financially committed to developing technologies to benefit their businesses.

Microsoft continues to leverage investments in emerging startups to strike cloud partnerships, one of its biggest bets being a stake in General Motors. Co.

of the driverless-car startup, Cruise. Under the terms of the deal, Cruise will use Microsoft’s Azure cloud-computing platform to launch its autonomous-vehicle services.

As Microsoft moves forward, Google has participated in a $200 million investment round for Chicago-based Tempus, which uses artificial intelligence to improve patient care. A person familiar with the details of the deal said that as part of its 2020 investment, Google offered Tempus a significant discount for its move to the cloud from Amazon.

Under the contract, Tempus agreed to spend at least $20 million on Google Cloud in the first year, the person said, meaning Google’s revenue from the deal could exceed its investment within a few years.

Tempus did not respond to requests for comment. The Univision chief executive said Google’s investment was a corporate conversation separate from the cloud agreement, but called Google a true partner committed to growing its business.

The search company took a broader approach with its partnership with ADT. In 2018, the home security firm was looking to move some of its on-premises data to the cloud, said ADT chief operating officer Don Young. It met with representatives from Google, who eventually proposed a deal beyond cloud computing to include a partnership between ADT and Google’s Nest smart-home business, as well as a $450 million investment in ADT.

Mr Young said ADT may have kept some data in Google Cloud regardless of the investment, but added that the company has since increased its spending on Google’s cloud services.

“We would do a cloud deal, yes,” said Mr. Young. “But the exact cloud deal we made? I’m not sure.”

During negotiations to move its business system to Google Cloud, CME Group CEO Terry Duffy invested in his firm Key to a Deal. “I wanted a partner, not just a cloud provider,” Mr. Duffy said in an interview.

Mr Kurian said at the time: “Equity investing is a representation of our commitment.” He said this ensures Google will hire its best people to support the CME Group’s cloud efforts.

,For more Businesshala technology analysis, reviews, advice and headlines, sign up for our weekly newsletter.

Write Tripp Mickle at [email protected] and Aaron Tilley at [email protected]

,

- Advertisement -

Stay on top - Get the daily news in your inbox

DMCA / Correction Notice

Recent Articles

Related Stories

Stay on top - Get the daily news in your inbox