After 15 years of losses, Google Cloud is on its way to a first profitable year.
So, how come Google’s been losing billions in the cloud space over the same time?
However, therein lie its cloud struggles, as the enterprise market is a different ball game altogether.
Like with its consumer products, Google kept trying to focus on ease-of-use and simplicity that would appeal to all, over functionality & customer-centricity.
As a result, even though Microsoft’s Azure launched afterwards, it lept over Google to become the 2nd largest player behind AWS, with 21% market share.
Although Google also grew, so did its costs, with hiring & data centre expenses ballooning. Moreover, it tried to make-up for its lack of organic success with acquisitions, like Firebase for a whopping $550 million.
At times, Google would lose north of $1 billion a year on cloud.
The turning point came with the hiring of Thomas Kurian, a cloud veteran from Oracle.
Under new leadership & recognising its internal limitations, Google noticed that rivals AWS & Azure were trying to create a closed ecosystem, undercutting third-parties in the process. This offered Google a golden opportunity to carve out its differentiator.
So what if Google wasn’t all that great with enterprises? Instead of directly winning over the client, it could instead win over channel partners who were being undercut by AWS & Azure, who’d in turn help drive enterprise sales.
Google Cloud would become a champion for open source initiatives, attracting more third-parties that would compensate for its lack of enterprise tact, while diversifying what clients could achieve on its cloud platform.
It slashed the marketplace commission it charged partner firms servicing its cloud clients from 20% to 3%, steered clear of cannibalising them & put forth its co-selling proposition.
This saw an influx of 35,000+ entities to its Partner Advantage Program.
In essence, its outsourcing became its core competency.
This has led to the number of clients spending >$1 million a year on Google Cloud Marketplace grow at 600%, with spending via channel partners skyrocketing at a triple-digit rate as well.
In the latest quarter, Google Cloud posted profits of $395 million and now accounts for >10% of parent Alphabet Inc.’s revenues, helping it offset a slowdown in digital ad sales.
However, at 10% market share, Google Cloud is still a distant 3rd behind Azure & AWS, do you think it can catch-up?