5 years ago, a top exec said Google's cloud would drive more revenue than ads by 2020. Google's first peek at the numbers shows that it's off to a good start, but way off that vision.
- In 2015, top Googler Urs Hölzle made a big prediction: By 2020, Google would make more money from the cloud than it does from ads.
- It's now 2020, and Google Cloud revealed that it did $2.6 billion in revenue for the last three months of 2019 - a minuscule fraction of the $46 billion that Google parent company Alphabet booked in the quarter.
- In fairness to Hölzle, he later walked it back, saying that it might not happen on his original timetable. But the results underscore how Google is still an advertising company first and foremost, with other businesses a distant second.
- It also shows how Google Cloud's revenue is dwarfed by that of Amazon Web Services and Microsoft, which compete with both the Google Cloud Platform and the Google G Suite productivity software.
- Google Cloud is also showing growth of over 50% year-over-year, in a sign that CEO Thomas Kurian has built up the unit's momentum in his year-long tenure.
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Way back in 2015, Urs Hölzle - Google's 8th employee, and then the search giant's cloud computing boss - made a bold prediction. He said that within the next 5 years, Google would make more money from its then-nascent cloud business than it does from advertising.
"The goal is for us to talk about Google as a cloud company by 2020," Hölzle said on stage at an event in San Francisco, as Business Insider reported at the time. By way of context, in 2014 - the year before Hölzle made his remarks - Google had generated $74 billion in revenue, 89% of which came from its advertising products.
Well, it's now 2020. And on Monday, Google Cloud for the first time ever revealed its specific financials to Wall Street investors. Specifically, Google said that its cloud business did $2.6 billion in revenue in the last three months of 2019, up over 50% from the year before, putting it on track to generate $10 billion this year in total.
That's certainly not pocket change, and that kind of growth looks pretty solid when you're talking about revenues totalling in the billions of dollars. But it only accounts for a minuscule fraction of the $46 billion or so of revenue that Alphabet generated in the quarter. With about $38 billion of that revenue coming from ads, we're still a long way away from talking about Google as a "cloud company."
In fairness to Hölzle, he backed down from his prediction in 2017, saying that while he still believed in his vision for Google Cloud, it might take a little bit longer than 2020 to get there, which he attributed to the continued fast growth of the advertising business. Even then, though, this week's Google results provide an uncomfortable reality check for how fundamental advertising remains to the business.
The results also show that while Google Cloud has made significant progress in the year since Thomas Kurian took over for Diane Greene as CEO of the business, it has an equally long way to go to catch up with Amazon Web Services and Microsoft, the leaders in the cloud computing market.
Competitive dynamics
Google Cloud encompasses two main businesses: Google Cloud Platform, which allows customers to rent fundamentally unlimited supercomputing power from Google's own massively efficient data centers, and G Suite, a cloud productivity suite that encompasses enterprise versions of tools like Gmail or Google Docs. Google's revenue figures don't break out how much each of those businesses contributed to the overall $2.6 billion number.
However, Google Cloud Platform's chief rival is AWS, which Amazon said did $9.9 billion in revenue for the last three quarters of 2019 - quadrupling Google's overall cloud revenue, in a comparison that would likely be much harsher if we knew exactly how much of it came from GCP specifically.
Microsoft, like Google, doesn't break out specific figures for many of its cloud businesses. But in the most recent quarter, Microsoft said that it booked $12.5 billion in "commercial cloud" revenue, which encompasses Azure, Office 365, its Dynamics customer relationship management software, and other enterprise cloud products. This means that while Azure is still likely much smaller than AWS in terms of revenue, it's still considerably larger than GCP.
The road ahead
All credit to Google Cloud CEO Thomas Kurian, and his predecessor Diane Greene: When Hölzle first made his prediction, Google Cloud was a sideline business that had a reputation for mostly appealing to hardcore developers, rather than deep-pocketed enterprise customers.
A month after his remarks, Google brought in Greene, who didn't take long to reinvigorate the Google Cloud business, putting into place a series of reforms that made the company a more serious player. Before long, she was pitching Google Cloud as a complement to, not a replacement for, AWS and Microsoft Azure, and snagging customers like Apple in the doing.
Kurian, a long-time Oracle veteran before starting at Google Cloud in January 2019, has taken the baton from Greene and run with it.
On Kurian's watch, Google Cloud has revamped its sales strategy to make it more competitive with AWS and Microsoft for big deals, in a strategy that seems to be working as it snags big new customers like Activision Blizzard. And the 50% revenue growth year-over-year shows that the strategy seems to be translating into significant growth.
The company has also gotten more aggressive on the G Suite front, hiring ex-Microsoft exec Javier Soltero to lead the business, in what Business Insider has reported will see a rethinking of how it positions Microsoft Office as friend, not foe, to its own offerings.
At the same time, Kurian has made his own bold prediction: He told employees that he wants Google Cloud to beat either Amazon or Microsoft and become the second-place player in the cloud market by 2023.
While there's no denying that Google Cloud has made notable moves under Kurian's stewardship - one analyst told Business Insider's Rosalie Chan that the company is on the right path to hit as much as $19 billion in revenue by 2021 - these new Google Cloud figures show that Kurian's vision, too, has a long way to go before it comes a reality.
