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Google and Tech Competitors Tap Cash Reserves to Realize Cloud Ambition

Google and its rivals are using a new weapon in the battle for cloud computing market share: massive investments in companies that agree to sign on to their services.

With Thomas Kurian serving as cloud chief operating officer since 2019 after a long tenure at

Oracle Corp.

ORCL -0.50%

, the

Alphabet Inc.

GOOG 0.04%

The unit tapped $142 billion in cash to make it more appealing to customers. Google has acquired stakes over the past year in companies including Univision Communications Inc. and

CME . Group Inc.,

CME -0.44%

in turn won multi-year commitments to its cloud service worth up to $1 billion or more.

The deals make Google one of the most active of the big companies try to get the position above

Amazon.com Inc.,

AMZN -0.86%

Cloud market leader.

Microsoft Corp.

MSFT 0.21%

also bought shares in several startups as part of transactions that required them to use its cloud. And last year, Oracle tried to buy a large stake in TikTok as part of a deal to let the Chinese-owned social media app use its cloud service — and cited a business boost. its cloud this month when it announced its biggest deal ever, plans to buy back 28.3 billion dollars company’s medical records

Attestor Corp.

blank

Google now accounts for 6% of the rapidly expanding cloud market, up 1 percentage point from a year earlier.


Photo:

David Paul Morris / Bloomberg News

The fledgling strategy has helped Google increase its market share in a huge and rapidly expanding industry that has been key to its growth. Google now accounts for 6% of the cloud market, up 1 percentage point from a year earlier, though still far behind Amazon’s 41 percent and Microsoft’s 20 percent.

“Nobody wants to do this to ‘buy’ customers, but if you’re number three or four, you’re going to be,” said Holger Mueller, an analyst at Constellation Research Inc., who focuses on enterprise technologies. must be creative.

The investments underscore how tech companies’ strong cash flow gives them a big advantage over smaller competitors in selling cloud infrastructure services, business operations at its core is to provide remote, rented computing and storage services. Those companies can afford the massive infrastructure investments needed to build multi-billion dollar data centers and subsidize the cost of moving customers to their cloud systems – helps explain why three firms control two-thirds of the market.

A Google Cloud spokesperson said that they have won over the majority of customers with their capabilities, adding that investments are part of their strategy. “In certain cases, Google pursues investments and partnerships in attractive growth areas, a practice common to many companies in the enterprise industry,” he said.

Alphabet investors see Google Cloud as the most promising growth area and the best opportunity to diversify beyond the online advertising business that accounts for 80% of revenue. The cloud unit, which begins disclosing its financials in 2020, has recorded more revenue in the first nine months of 2021 than it did for all of 2020 and is expected to grow 50% to $19.26 billion during the year. whole year.

Those profits have come with high costs, with the company spending heavily to develop its infrastructure and expand its sales force. Google Cloud for the January-September period halved its operating loss from a year earlier, to $2.2 billion.

Google deals have covered customers of various sizes and sectors. Over a period of over a year, it invested $1 billion in futures trading CME Group company; $450 million in home security provider

ADVERTISEMENT Inc.

; and Undisclosed amount in Spanish-language media company Univision and health tech startup Tempus Labs Inc. All have signed long-term cloud computing contracts with Google.

Kurian played a central role in opening up the investment strategy, said the former Google Cloud executive. Before coming from Oracle, Google prioritized developing new technologies to attract customers instead of traditional sales. He improved its approach, more sales staff and sweetening performance bonus.

Microsoft announces an investment and cloud deal with a food delivery startup

Grab Holdings Ltd.

in 2018. Mr. Kurian floated the idea of ​​adopting a similar strategy to catch up with his competitors, said the former Google Cloud executive. The investments are designed to give companies another reason to choose Google over competitors and convince them that Google is financially committed to developing technologies to benefit them. their business.

Microsoft has continued to leverage investments in emerging startups to achieve cloud partnerships, with one of its biggest bets become a share in

Synthetic engine Have.

Start the driverless car, Cruise. Under the terms of the agreement, Cruise will use Microsoft’s Azure cloud computing platform to deploy its autonomous vehicle services.

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

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

Tempus did not respond to a request for comment. The Univision CEO said the Google investment was a corporate negotiation separate from the cloud deal but called Google a partner truly committed to growing its business.

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

Young said ADT will put some data in Google Cloud regardless of the investment, but added that the company has increased spending on Google’s cloud services since then.

“Yes, we did a cloud deal,” said Mr. Young. “But the exact cloud deal we did? I’m not sure.”

During the negotiations to move his trading system to Google Cloud, CME Group CEO Terry Duffy invested his solid key in a deal. “I wanted a partner, not just a cloud service provider,” Mr. Duffy said in an interview.

“The equity investment is representative of our commitment,” Mr. Kurian said at the time. He said they make sure Google appoints its best people to support CME Group’s cloud efforts.

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Ian Walker

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