Google Cloud, a division of Google’s parent company Alphabet, is responsible for providing cloud computing, data analytics, machine learning and other services. Since its launch in 2008, Google Cloud has been in the red until the first quarter of this year, when it finally turned a profit for the first time.
According to Alphabet’s earnings report, Google’s cloud business reported revenue of $7.4 billion and operating profit of $191 million for the quarter ended March 31 (currently about RMB 1.324 billion), with a profit margin of 2.5%. While this is a historic breakthrough, Google’s cloud business still looks weak compared to its competitors. Amazon’s AWS (Amazon Web Services) will have revenues of $80 billion in 2022, with an operating profit of $22.8 billion and a 28% profit margin. Microsoft’s Azure is also growing, and although no specific figures have been released, it is estimated that its market share has more than doubled that of Google’s cloud business.
Why does Google’s cloud business keep losing money? The main reason is the amount of money it has invested in expanding its infrastructure, developing new products and recruiting new customers and talent. Over the past three years, Google Cloud has lost a cumulative $14.6 billion, but Alphabet CEO Sundar Pichai doesn’t care about these losses, saying that they are necessary investments for future growth and that Google itself has enough profits to support these investments. He expressed his satisfaction with the profit and said that Google Cloud has become one of the largest enterprise software companies in the world.
Whether the Google Cloud business can close the gap with the leaders in the future will also depend on its ability to continue to be innovative and competitive. Pichai said he believes these technologies will not add much to infrastructure costs and will give users more choices.
At the same time, Google’s cloud business faces a number of challenges and pressures. Firstly, there are changing market conditions, with demand and revenue across the industry falling due to factors such as the new crown epidemic and chip shortages. alphabet’s total revenue grew by just 3% this quarter to $69.8 billion. Secondly, there was the issue of cost control, with Alphabet taking a $2.6 billion charge for the quarter, mainly consisting of items such as job cuts and the elimination of unused office space. These costs resulted in a decline in its operating income and profits and margins. Finally, there is the issue of strategic alignment, with Alphabet’s chief financial officer Ruth Porat saying that the company is committed to long-term growth and creating room to invest in the most promising areas by optimising its cost structure. This means that Google’s cloud business is likely to face more internal competition and scrutiny, rather than unlimited support and enablement.