Alphabet (GOOGL -3.40%) appears to be well-positioned in the cloud industry, yet some opportunity has evaporated. The initial cloud wars have been lost by Alphabet’s cloud business, which now boasts significantly less clout than Amazon’s AWS and Microsoft’s Azure. As a result, many investors believe that Alphabet no longer has the capacity to create a meaningful cloud business. Here are a few reasons why Google’s cloud operation may flourish and turn profitable in the future.
Google wasn’t late to the cloud industry, contrary to popular belief. Google released Google App Engine in 2008, just two years after Amazon introduced Amazon Web Services (AWS). Some thought GAE was technically superior to AWS. Despite this, AWS won the early rounds of competition for market share. And it’s probable that one of the most important factors behind GAE’s failure to compete with AWS was a lack of confidence from many developers in Alphabet’s commitment to build a cloud business.
1. Trending toward the multicloud
Most customers only select one cloud provider in the early days of cloud computing. However, the cloud has evolved over the years from organizations that relied solely on a single cloud to those that use several. According to a Gartner poll of public cloud users conducted in 2020, 81% used two or more providers. For a variety of reasons, the number of people using various clouds is increasing.
One, employing several clouds minimizes the danger of a single provider’s failure. No company wants its operations to be interrupted by services failing. A multicloud architecture ensures that business activities continue uninterrupted; if one cloud goes down, businesses may quickly move to another.
Second, since Microsoft dominated the market with its proprietary Windows operating system in the 1990s, businesses have shunned relying on only one vendor for a critical piece of software. Google understands that firms don’t want to be restricted to using only one cloud, so it has built its platform to allow developers to create new software programs and run them on the cloud service they choose.
Many of Google’s best-of-breed solutions are available for use on any cloud and are paid for by users. Customers can utilize Google’s BigQuery analytics on data stored in Amazon S3 or Azure blob storage. Alphabet may still benefit from businesses that use other clouds.
2. Security is a huge differentiator for Google
Since the 2020 Solarwinds hack leaked sensitive information from the US federal government, Cloud customers have become more concerned about security.
As concerns swirled about security in the wake of Solarwinds, Forrester Research released a study at the end of 2020 declaring Google Cloud to be a leader in IaaS security. Recently, during a Deutsche Bank conference, the Google Cloud CEO Thomas Kurian referred to Google’s cloud tools and security as a major differentiator for the company in adding interest from prospective clients.
Alphabet has a long-standing commitment to security, and it wants to acquire security firm Mandiant (MNDT -0.97%). As a result, Google Cloud will have a weapon its bigger rivals do not. Mandiant, formerly FireEye, was the first firm to discover the Solarwinds breach.
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