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Can Google Ever Catch Amazon And Microsoft In The Cloud?

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Can Google Ever Catch Amazon And Microsoft In The Cloud?

Can Alphabet Inc.'s (NASDAQ: GOOGL) Google Cloud compete with the two industry giants? And if it can’t, will it shift its focus elsewhere?

A report in The Information suggested Google is pushing to have its cloud computing services unit beat at least one of the big two in the space, Amazon.com Inc.'s (NASDAQ: AMZN) Amazon Web Services and Microsoft Corporation's (NASDAQ: MSFT) Azure cloud computing services, by 2023.

If it doesn’t, the division could lose funding, the article, based on an unnamed source’s account of a 2018 meeting, suggests. It's a suggestion Google denies.

"Reports of these conversations from 2018 are simply not accurate,” Google said in a statement it sent to The Information after the piece ran.

Where The World's Going

Cloud services — where businesses and organizations essentially rent the hosting company's computing infrastructure capacity rather than investing in their own — is becoming huge business in a world increasingly reliant on enormous amounts of data, and where systems that are becoming increasingly interconnected.

Observers and analysts tend to think that while Google has been willing to kill off some services (remember Google Plus?), it seems unlikely it would move away from the increasingly essential and potentially very lucrative cloud services business, especially as the world transitions to 5G.

The worldwide cloud services market grew by nearly 40% in the third quarter of 2019.

"They will need to be in cloud," said Tigress Financial analyst Ivan Feinseth. "I don’t think they get out of the cloud hosting business — they’re doing very well in it."

Strong Cloud Growth

Google has been touting the growth in its cloud business for several months, with Google executives noting, for example, on a July earnings call that the Google Cloud platform is one of Alphabet's fastest-growing businesses and the third-largest revenue driver for the company.

Data tracking firm Canalys reported in October that Amazon remains the dominant player in the space even as it is seeing its cloud growth slow a bit.

AWS has about 32% of the market share in cloud, while Microsoft's Azure is at about 17%. Google is a distant third at 7%.

But Google's cloud growth was about 70% in the September quarter to just under $2 billion, according to Canalys, edging it into the list of companies legitimately vying for front-runner status.

Google is investing heavily in that growth, which doesn't signal that it may be considering eventually pulling the plug, Feinseth said. 

The analyst said in a November note to investors that cloud infrastructure and machine learning are likely to be the future drivers of the company's growth.

"Google continues to invest in the buildout of data centers, along with the hiring of salespeople and engineers, to support its cloud services platform," he said. 

Canalys said that in addition to building new cloud data centers, Google's made "major investment in internal sales and partner resources." 

Amazon Vs. Microsoft

The huge promise of, and need for, the cloud computing sector was highlighted most recently in a story that didn't involve Google, as Amazon lost out to Microsoft on a $10-billion, 10-year contract to run cloud computing for the Pentagon, a contract known as Jedi.

While Amazon's AWS, an early pioneer in cloud, has been the industry leader, Microsoft's win on the Pentagon contract instantly put it in the same category.

Amazon disagrees, alleging in a formal protest that the government gave the contract to Microsoft because President Donald Trump wanted "to screw Amazon" because he doesn't like CEO Jeff Bezos. Amazon's still the sales leader in the space.

Related Links:

Microsoft In The Clouds With Q1 Earnings Report On Continued Strong Azure Performance

Microsoft Could Win Next Phase Of Cloud Battle, Wedbush Says

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