Google (NASDAQ:GOOG) has made a significant cloud announcement a few days ago. The company said that the beta tag has been removed from the Google Compute Engine or GCE cloud service. By doing this Google has declared a direct war against Amazon's AWS cloud services.
In this article we will see how Google is emerging as a strong player in the cloud business, and how Amazon's (NASDAQ:AMZN) cloud offerings could be impacted by Google's recently announced initiatives.
Google's Cloud Play
Brian Goldfarb, the marketing executive in charge of Google's cloud platform, said to Network World in an interview that it will be helpful to think about Google's cloud offerings in the context of the company's larger strategy. Goldfarb said:
Google is creating an end-to-end offering that provides a collection of services that span the gamut of what we think developers, IT professionals and businesses need as they're developing these types of solutions: infrastructure as a service or IaaS, platform as a service or PaaS, storage as a service, big data and analysis as a service, and it will go on and on as we expand out those capabilities.
Google first introduced Google App Engine (GAE), a PaaS offering, as one of its major cloud service. Then Google took the beta tag off of Google Compute Engine, an IaaS offering that enables users to create virtual machines (VMs), boot them up, take advantage of virtual networking, and have all the components of an infrastructure offering.
Google's cloud business will triple and reach nearly $1 billion in 2013, Technology Business Research Inc. (TBR) predicted. Google hasn't shared specific revenue figures from emerging platforms like Google Compute Engine or Google App Engine. Goldfarb added:
Basically, with GCE we provide the uptime, the hardware, the pipes and the management, and users are responsible for the operating system and up -- when things get patched, what languages are used. That's opposed to GAE, which takes these services one step further up the stack. In GAE users are relinquishing more control; we're defining the operating system, the platform, and maintaining it. This higher-value service provides users the ability to auto scale no matter the incoming load. Customers don't have to worry about patching or managing a server and they can focus solely on the code and the data running in that app.
TBR offered the following data points to the media:
- TBR estimates that Google's cloud business, consisting of Google Apps, Google App Engine and Google Compute Engine (no ad-related revenue) generated $97 million in the Q4 2012 and $314 million in the year.
- TBR believes Google's cloud business grew 83% year-over-year.
- TBR believes that Google's cloud business will triple annually in 2013 to just under $1 billion in 2013.
The Cloud War: Google vs. Amazon
Google recently announced that it has reduced prices for the on-demand virtual machines by 4.3% across the board. Amazon responded within 24 hours, when AWS announced a 26% drop in prices for its Windows virtual machines (VMs) on demand. Since Amazon had an operating margin of only 1.11% in 2012, compared to Google's more 25%, Amazon can afford to reduce the prices of its cloud offerings without affecting profitability.
Amazon introduced a major IaaS offering named Redshift in February, which is essentially a part of AWS. Redshift will provide customers a low-cost alternative to expensive on-premises database storage systems. However, Amazon's IaaS offerings could face serious challenges going forward. One analyst, Jillian Mirandi of Technology Business Researcher, has suggested that continued outages could eventually start hindering businesses' willingness to invest in Amazon infrastructure.
Google's recent cloud announcements will unleash direct competition to Amazon, according to Goldfarb. He said Google wants to continue working closely with customers who use GCE. That's why the company has released GCE in only a limited availability, with a required $400 per month service pack.
Amazon is the undisputed leader in public-cloud, a market which Gartner estimates jumped 20% last year to $109 billion. Amazon offers an incredible breadth of cloud services that ranges from computing to storage and networking, from databases to load balancers and application development. However, the only drawback is Amazon hasn't been a popular choice in the enterprise community. But Amazon is looking to extend its enterprise reach and made a series of announcements targeting enterprises.
AWS is a price leader, and is expected to contribute $20 billion in Amazon's revenue by 2020. If anyone can compete with Amazon on scale, it's Google, says George Reese, founder of enStratus, a cloud management company. They're really going directly after Amazon on pricing and capacity saying "Hey, we've got scale too," says Forrester analyst Dave Bartoletti.
The best advice for people that want to invest in cloud computing stocks is to consider both Google and Amazon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.