Google Cloud certainly has the technical chops and engineering talent to compete with Microsoft Azure and Amazon’s AWS when it comes to cloud infrastructure, edge computing – and especially inferencing/training for machine learning models. However, Google may lack focus due to Search and YouTube being the main revenue drivers. This is seen from the company’s inability to ignite revenue growth in the cloud segment during a year when digital transformation has been accelerated by up to six years due to work-from-home orders.
In this analysis, we discuss why Google (Alphabet) may have missed a critical window this year for the infrastructure piece. We also analyze how Microsoft directed all of its efforts to successfully close the wide lead by AWS. Lastly, we look at how all three companies will bring the battle to the edge in an effort to maintain market share in this secular and fiercely competitive category.
Cloud IaaS Overview:
The three leading hyperscalers in the United States have diverse origins. Amazon found itself serendipitously holding server space year-round that it could rent out and was first to market by a wide lead. Amazon continues to release customization tools and cloud services for developers at a fast clip and this past week was no exception.
Microsoft’s roots in enterprise created a direct path to upsell on-premise and become the leader in hybrid. The majority of the Fortune 500 is on Azure as they want seamless security and APIs regardless of the environment.
Google is one of the largest cloud customers in the world due to its search engine and mass-scale consumer apps, and therefore, is often first to create cloud services and architectures internally that later lead to widespread adoption, such as Kubernetes. Machine learning is another piece where Google was one of the first to require ML inference for mass-scale models.
duopoly at this time. Cloud is expensive on a capex level, so if Google doesn’t find its footing, the margins driven by ads could take a hit in the near-term.
Who will lead software and AI applications is impossible to predict (and when) as the main competitors will be hundreds (if not thousands) of startups. With that said, I personally own Amwell because Google is a backer and I think health care is an example of a vertical where Google’s experience with data can deliver a serious competitive edge. To be clear, Alphabet may have an advantage with AI/ML software whereas this analysis is about the infrastructure. Perhaps there will be a catalyst in the future for Google Cloud to take more share but the strategy is not evident at this time.
