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On February 1, Google will report its first earnings as Alphabet, its holding company. Then we will see two sets of results, for Google Inc and “other bets.” Before then, we’ve given you, loyal reader, a look at each of these bets — the existing subsidiaries of Alphabet.
Finally, we bring you Google, the search engine in its 18th year with Android, YouTube and a host of ancillary arms. Here’s an assessment of one of its most critical units and potentially gigantic businesses.
Should you bother to track the menagerie of things Alphabet does — the smart home gizmos and cable operations; the drones and satellites; the robots and robot cars; the biomedical sensors and gene splicing and who knows what more — here’s one point to remember: It’s all paid for almost entirely by search and online ads.
One reason for Alphabet’s creation was to show investors how profitable this core business is. Another reason was to incubate startups that could replicate that profitable magic elsewhere. Anywhere.
While that second hit could come from any Alphabet subsidiary, it’s more likely to come (and come sooner) from Google proper. CEO Sundar Pichai’s sprawling operation will face the most pressure to find a new bulwark of revenue, particularly if the remarkable growth of search ads steadies, as many expect it to do.
And Google’s best bet at a next hit that funds all its crazy moonshots is one of the least exciting enterprises: Enterprise.
Revenue: $1 billion 2015 run rate (estimated)
Key execs: Diane Greene, SVP; Urs Hölzle, SVP, technical infrastructure; Amit Singh, president, Google for Work; Brian Stevens, VP, Google cloud platform; Prabhakar Raghavan, VP, engineering for apps.
Google has been a sleeping giant in business software, deploying its cloud tools mostly to service itself. That may have changed after November, with the arrival of Diane Greene, the revered software exec who co-founded VMware and is now responsible for all enterprise efforts and a growing number of Googlers.
Although Google has kept its cloud efforts close to the vest, that internal work positions the company to front a challenge to formidable rivals Amazon and Microsoft, Greene said in an interview with Re/code.
“The wonderful thing is that Google, for 18 years, since it’s been founded, has been in the cloud. It’s focused on its extremely large customers — search, ads, YouTube,” she said. “Much of what we’re working on is moving these over for the public.”
That’s something Google has not done terribly well to date. Its DNA has always been consumer, with the upper echelon of the company preferring to green-light products that can reach billions of users — not slimmer ones designed for sales. Yet the company must prove it can tweak its DNA, or squander its sizable assets in data infrastructure. It must also prove it can do something else besides search.
Under Pichai’s product leadership over the past 15 months, Google looks to have awakened to this reality. It has been talking more about its cloud game with potential clients and investors. Urs Hölzle, SVP and infrastructure boss, has predicted more than once that Google’s cloud business could exceed search, a bold claim.
The linchpin moment for Google’s enterprise efforts, however, came when Alphabet convinced Greene, already a director, to come aboard as an executive.
Take II, Underdog Edition
As we reported earlier this week, Greene is accruing considerable power inside Google, with a bulk of the consumer Web app teams moving under her. In her arrival note to Googlers, Greene stressed that she was intent on building actual revenue.
That seems obvious. But those words were relieving to those inside Google, and those who’ve left. Because for years, enterprise was treated a bit as the ugly stepchild of the company. The stepchild status cemented four years ago with the advent of Google Plus. Microsoft was no longer the prime concern for Google; it was Facebook. And there went the focus and dollars.
“Google Plus sucked all the oxygen out of the room,” said one former Google enterprise exec. Another described it as “the sucking vortex of all resources.”
There were some exceptions at the C-suite. Pichai, back when he managed Chrome, was supportive of enterprise initiatives, said multiple Google enterprise vets. Two years ago, Google turned more to enterprise, setting up its cloud sales operations and expanding its business apps. Around two million businesses are now paying customers for Google’s Apps for Work program.
Greene admitted there was once a sentiment inside Google that the company wasn’t “curious” about the enterprise, but argued it wasn’t an impediment. “[Former CEO and Alphabet chairman] Eric Schmidt has always had an interest in it and has been excited about it,” she said.
Still, whether it is because of the company’s reticence or its rivals’ growth, Google is the underdog.
According to analyst figures, Google’s cloud offering is well behind Amazon Web Services, the dominant leader, and Microsoft’s Azure. (Google doesn’t share its cloud business numbers, and likely won’t in upcoming reporting.) In a recent report, RBC capital pegged the AWS run rate at $8 billion for 2015; the firm estimated Google’s cloud rate at about an eighth of that.
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“This is a scale-driven business,” RBC’s Mark Mahaney said. And Amazon has the scale. AWS is the most-used vendor and growing at a fast clip, according to the RBC survey of companies. Google, conversely, shed customers, dropping from 40 percent of surveyed vendors in 2013 to 32 percent in 2015.
(Update: Contra the RBC survey, Google says that its cloud business is adding customers across all segments and has picked up, not lost, big clients this year, per a spokeswoman.)
That said, Mahaney noted that clients prefer Google for its price and Google has the edge of being able to subsidize its offerings. But entering a price war is tricky. AWS dropped prices earlier this month. In response, Google released a snappy blog post warning cloud customers that the weeds of AWS’s cuts offered an “unpleasant surprise” — and that Google was still the thriftier option. The next week, Microsoft’s Azure slashed prices, too.
Critically for Google, the industry is still young and growing, with more and more industries climbing aboard the cloud.
The business has the eager backing of the Googleplex, Greene argued. “Certainly what we’re doing is exciting to everybody,” the newest SVP said. “Everybody can see how this fits in the mission of Google.”
Who to Know
Who and what will report to Greene inside Google is still being sorted out. But a key report is Hölzle, the veteran guru behind Google’s gargantuan data infrastructure. As a very early employee, he carries considerable weight with the still reigning triumvirate atop Alphabet.
Amit Singh runs the enterprise sales operations. When he joined from Oracle in 2010, recruited by former business chief Nikesh Arora, Googlers were worried he wouldn’t fit with the culture (i.e. wasn’t Google-y enough), said one former employee. But he has proven his operational chops since.
Singh also has some notable deputies, including Shahla Aly, a Microsoft VP, who runs customer experience; Miles Ward, a systems architect specialist from AWS; and Brian Stevens, the one-time CTO of enterprise security stalwart Red Hat. Prabhakar Raghavan, a research veteran of IBM and Yahoo, leads up engineering for consumer and enterprise apps.
And Greene is likely on the prowl for more talent — possibly, we’ve heard, from her old company VMware.
Greene declined to say if she was looking there, but admitted she’s bulking up. “Are we hiring? Yes,” she said. “We have huge growth. When you have huge growth, you bring on more people, as anybody does.”
Additional reporting by Arik Hesseldahl.
This article originally appeared on Recode.net.
