Amazon’s cloud gain could be Google’s cloud loss

Cloud is one of Alphabet’s fastest-growing businesses. And the massive size of Amazon’s cloud offering, Amazon Web Services, and the growth of Microsoft’s own cloud business, Azure, is not good news for Google.

Despite the fact that cloud is still a relatively new industry with lots of room for growth, early entrants are more likely to dominate.

That means it’ll be that much harder for Google to catch up — or, as Google executive Diane Greene recently said, surpass big players like AWS.

One reason for this is that for every customer Amazon gains, that’s a potential addition Google has lost. Changing from one cloud provider to another is technically extremely difficult, making it a better approach to nab companies as they first buy into cloud services rather than luring them in later.

Amazon’s cloud business grew 43 percent to $3.7 billion in the first quarter. Microsoft’s Azure gained 93 percent in the same period. The company doesn’t break out revenue for Azure, but the unit was reported to make $2.7 billion in 2016.

Google also doesn’t break out cloud revenue, but what AWS makes in a quarter is easily more than Google cloud makes in a year. Also, should Amazon see any threat from Google or Microsoft, it could just as easily lower its rates and weather the losses to gain marketshare. That’s usually been CEO Jeff Bezos’s playbook.

Still, there’s a lot of room for growth in cloud. Gartner predicts that by 2020 the market will reach $383 billion. And Amazon’s growth is decelerating.

So if Google continues to gain large customers — it recently announce HSBC and SAP were using its public cloud — it can gain ground, but it’s working against a penalty for being a latecomer.

Alphabet lumps cloud revenue into Google’s other revenues, which grew 50 percent year over year, from $2 billion in the first quarter of 2016 to $3 billion in the last quarter. Hardware and software are also in that mix.

It’s not clear how much of the $3 billion is from cloud, but cloud is “one of the fastest-growing businesses across Alphabet” and saw the most sizable headcount growth of all product areas, Alphabet Chief Financial Officer Ruth Porat said during the earnings call Thursday.

An RBC estimate put Google cloud’s annual run-rate revenue at about $1 billion as of the end of 2015. Even if revenue has grown significantly in the last year, it looks as though it will continue to be dwarfed by competition unless Google ramps up its on-boarding of big new customers or makes major acquisitions.

This article originally appeared on Recode.net.

Will you support Vox’s explanatory journalism?

Most news outlets make their money through advertising or subscriptions. But when it comes to what we’re trying to do at Vox, there are a couple reasons that we can't rely only on ads and subscriptions to keep the lights on.

First, advertising dollars go up and down with the economy. We often only know a few months out what our advertising revenue will be, which makes it hard to plan ahead.

Second, we’re not in the subscriptions business. Vox is here to help everyone understand the complex issues shaping the world — not just the people who can afford to pay for a subscription. We believe that’s an important part of building a more equal society. We can’t do that if we have a paywall.

That’s why we also turn to you, our readers, to help us keep Vox free. If you also believe that everyone deserves access to trusted high-quality information, will you make a gift to Vox today?

One-Time Monthly Annual

$5/month

$10/month

$25/month

$50/month

Other

$

Yes, I'll give $5/month

Yes, I'll give $5/month

We accept credit card, Apple Pay, and Google Pay. You can also contribute via