Google's 'challenger' cloud business hits $10 billion annual run rate as Alphabet breaks out the numbers for the first time

Profile picture for user slauchlan By Stuart Lauchlan February 4, 2020
Summary:
Alphabet has broken out its Google Cloud revenues for the first time as the big name customer logos rack up.

Google CLoud

Alphabet opened the kimono on its cloud revenues for the first time yesterday, revealing that Google Cloud - including Google Cloud Platform and G Suite -  has a $10 billion run rate. For the fourth quarter,  cloud revenues were $2.6 billion, a 53% growth rate year-on-year. 

Alphabet CEO Sundar Pichai said of the numbers: 

We are really pleased with the momentum we are seeing in cloud. Year-on-year, the number of deals over $50 million more than doubled. The investments in cloud’s go-to-market expansion are resulting in customer momentum.

Pichai also pointed to "a number of senior strategic hires”, the most notable of which was of course the arrival of former Oracle exec Thomas Kurian as the new head of Google Cloud: 

Under Thomas' leadership, I think we have clearly focused on six industry verticals across 21 markets and so doubling down on those efforts, bringing in a lot of new products and compliance certification, so effectively expanding the total addressable market.The team is on track to triple our sales force in three years, including bringing in a number of senior strategic hires and supplementing it with a channel partnership program.

Those 6 key verticals - financial services, retail, communications/media, manufacturing, public sector and healthcare - are providing valuable focus, he added: 

I think the progress I’ve seen in our customer focus, with our customer success organisation and the contracting framework, have all been great progress for us. Especially in one of these larger deals, [customers] are effectively looking for a technology partner. So differentiation is not just what we bring to the table in terms of cloud, where we have differentiated capabilities, but in many cases, it’s what we bring as Google.

He picked out healthcare as a case in point: 


Google Cloud works with hospitals and healthcare providers to securely manage their patients’ data. Data that is much more secure in the cloud than in paper records or on premises. Our AI teams at Google also work with partners to apply AI to help them and their patients whether it s developing better health systems or helping the diagnosis and deduction of disease.

Wins

In terms of other customer exemplars, Pichai cited a number of key wins: 

Wayfair is one of the many retailers who successfully ran holiday operations on Google Cloud. In addition, Lowe's which began transitioning of its legacy e-commerce system in late 2018 to Google Cloud worked with us during this year's peak holiday buying season to improve the stability of their e-commerce site. Worth noting, at the peak time, customers in our Black Friday/Cyber Monday program used for 4x to computer resources, compared to previous year and our platform experienced 100% uptime. 

Lufthansa Group is using our AI Solutions to develop new tools that will improve air travel operations. The US  Postal Service also chose Google Cloud AI to improve business processes and customer experience. We have recently signed a 10-year agreement with Sabre to help them improve operations and develop new air line and hospitality services.

The Sabre deal involves: 

  • Migrating the firm’s infrastructure to Google Cloud
  • Using Google Cloud’s data analytics tools to enable Sabre to enhance the capabilities of current and future products and tap into insights to improve operational efficiency and create and optimize travel options.
  • Develop a framework that, according to the formal announcement,  “leverages talent and assets of both companies to imagine, develop and deploy future capabilities that will advance the travel ecosystem”.

It’s a good example of the sort of deal that Google Cloud is now delivering on, said Pichai: 

If you look at Sabre, the partnership we can bring to them across our experience working in travel verticals as well. So, I think – and over time, I also think the AI-based, industry-specific solutions we are working on will end up being a differentiating factor as well.

My take

Inevitably there’s been a lot comment about Google Cloud’s position relative to Amazon Web Services - $9.95 billion for its latest quarter, 34% year-on-year growth - and Microsoft - commercial cloud revenue (including all cloud offerings) of $12.5 billion for its most recent quarter, a 62% year-on-year growth rate. 

Alphabet’s CFO Ruth Porat made no bones about pitching the Google status as being that of a challenger in this market. Alphabet’s share price fell after the earnings announcement yesterday, but that’s far more attributable to disappointing ad revenues coming out of YouTube than anything to do with the cloud business. This will be an interesting year to track Google Cloud’s progress as Kurian’s leadership is cemented and the list of enterprise customer logos gets longer.