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.
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.