Google To Open A Dozen New Data Centers To Take On AWS

  • Google is planning to open 12 new data centers over the next 12-18 months.
  • This has come just weeks after Google nabbed Spotify and Apple as its cloud customers.
  • The huge cloud push by Google could see Google Cloud become its biggest growth engine a few years down the line.

When leading subscription music service Spotify announced that it had decided to migrate its millions of user accounts and playlists from Amazon (NASDAQ:AMZN) AWS to Alphabet Inc-C (NASDAQ:GOOG) Google cloud, people sat up and listened. Three weeks later reports emerged that Apple (NASDAQ:AAPL) had followed in Spotify’s footsteps and had begun using Google’s cloud IaaS infrastructure after drastically cutting its spending on AWS. With this, the realization that Google had scored a major victory in its quest to become a leading enterprise cloud services vendor finally hit home.

However, now it has seems that Google is just getting started. New reports have emerged that Google plans to open two new data centers in Oregon and Japan, with plans to open another 10 over the next 12-18 months. The new facilities will comprise of Google’s own data centers and those leased from third-parties. If Google follows up on its plans, it will boast of 15 cloud regions supported by its cloud, five times the current number. In comparison, Amazon currently has 12 cloud regions though it plans to open another five.

The huge cloud expansion push is being driven by the company’s cloud chief, Diana Greene, a Silicon Valley legend who co-founded server virtualization company VMware (NYSE: VMW), who Google hired in November last year. Although Google is ranked among the cloud leaders, the cloud is still a small part of its overall revenue structure. There are several estimates regarding Google’s cloud revenue. JPMorgan estimates that Google’s cloud revenue clocked in at $500M in 2015, a small fraction of cloud leader Amazon which finished with almost $8B. Synergy Research estimates that Google owned 4% of the $23B cloud infrastructure market in 2015 which implies cloud revenues of $920M.

Whichever of the two figures one goes by, what is clear is that Google badly lags the cloud leaders, which is something of an irony considering that Google is credited with inventing the cloud for its own internal use in the 1990s. Part of the reason why Google has been lagging behind in the cloud game can be chalked up to the company’s propensity to over-rely on technological solutions even for rather mundane problems. Google’s App Engine employed a futuristic vision that allowed users to simply upload their software code while the company handled all the rest. But the average enterprise user did not need this kind of capability and instead opted for AWS’ less complicated but more versatile approach.

But it appears as if Google has now learned from its mistakes and is quickly moving to make compatibility, compliance, and security its #1 priority. And, oh, customer service. Indeed, Spotify says that while Google’s superior data tools played a part in the company’s decision to use its cloud, it was Google’s seamless customer service that tipped the scales in its favor:

“Amazon is a company with customer service in its DNA,” the VP said. “You don’t really think that about Google.” adding that Google’s engineer-to-engineer service interactions exceeded its expectations “It doesn’t feel like there is a layer of sales and sales engineering in between. That was the differentiator for us.”

Other than building data centers, Google also plans to grow its cloud presence inorganically via acquisitions. Further, the company is talking to software companies including Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL), SAP (NYSE:SAP) to bring their apps into Google Cloud. This is a critical step which is necessary if Google is to realize its enterprise cloud ambitions since many companies need prepackaged software products from these software giants.

These moves prove that Google really is serious about making its cloud one of its key growth drivers that will power its next growth phase. During Q3 2015 earnings call, Google said:

“Cloud is also a growing area where we see great opportunity, and we’re building a fantastic service that we’ll keep investing in,

According to Synergy Research, Google Cloud grew 108% Y/Y during Q4 2015 to hit a run rate of almost $1B/year. It’s entirely possible that Google Cloud growth will easily maintain triple-digit growth for years to come a la Microsoft’s Azure once Google opens the planned data centers. I see a situation where three years from now, Google Cloud will have hit a run rate of at least $5B/year, and could overtake Google Play revenue in five years or perhaps less. Google Cloud, together with Google Play and YouTube, has good potential to not only become one of Google’s biggest growth engines, but the biggest growth driver, in just a few years’ time. This bodes well for Alphabet stock.

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