Google’s attempts to bridge the gap between itself and the three top providers of cloud-related services has so far been unsuccessful. But it’s still early, and the industry itself is a growing one that has the potential to adequately support the earnings needs of all four of these ultralarge tech companies: Google's parent company Alphabet (GOOG, Financial)(GOOGL, Financial), Amazon (AMZN, Financial), IBM (IBM, Financial) and Microsoft (MSFT, Financial).
In the first part of this article I wrote about Google’s strengths in the cloud and how it still had a shot at reaching the cloud revenue levels of the other three. Today, I’m going to show you the challenges it will face on this arduous road to becoming relevant in the world of cloud.
The footprint problem
If you are a cloud infrastructure provider, the first criteria that you need to tick from a chief technology officer's perspective is the number of datacenters you have and their locations. Speed of delivery, computing power and storage are the primary objectives that you need to meet as a cloud IaaS provider. The higher the number of nodes in the network, the easier the path to reach the end point.
And in such cases a lack of footprint is as good as not having the supply to meet the demand. More specifically, it’s a reason for a client in a particular country not to choose you and instead go with a competitor who does have a local presence.
In March this year, IBM opened its 46th cloud datacenter in South Africa while Amazon opened one data center in India recently that adds to its 13 data center clusters around the world. The company has also laid out its plans to add four more.
Google on the other hand has most of its cloud data centers in the U.S., and one each in Belgium and Taiwan. The company has said that it will be adding four more regions to the mix this year and 10 more by the end of next year. As of now, however, it's still far behind all three industry leaders when it comes to the geographic spread of datacenters.
"We’re opening these new regions to help cloud platform customers deploy services and applications nearer to their own customers, for lower latency and greater responsiveness." –Â Google blog
As you can see from Google’s own words, you need to deploy services as close to your customers as possible. Just to give you an example, there are several regulations with respect to where a bank can store its data, and it differs from country to country. If you have a datacenter in the local region, you’re more likely to attract such businesses to your client list. But banking is not the only such industry. Data regulation is a serious matter for every security-conscious nation, and governments everywhere are waking up to the reality of data theft and unauthorized data movement.
So it’s not really a surprise that Amazon opened a new data center in India, where the company is growing its retail business at a rapid pace and is now looking at cloud opportunities in the country. Amazon knows that it cannot convince larger enterprises in India to adopt its cloud infrastructure without the ability to store data locally so it invested there.
This is going to be a problem for Google, but it’s not insurmountable. Google has plenty of cash on hand and it will build those 12-plus datacenters it's committed to. The real problem is that with each passing day Google will lose thousands of customers in many parts of the world just because it didn’t get there early enough.
That’s not something it can afford at this point in the cloud race.
How can Google turn things around?
As with any problem, there’s bound to be a solution if you look hard enough. In Google’s case, what it really needs to do now is to tap into its existing product offerings and push them aggressively into every single market where a datacenter will soon be available.
All Google needs to do is to take a page out of Microsoft’s book and apply it to its own business. I’m talking about Office 365, Microsoft’s runaway success that beat Google Apps, Box (BOX, Financial) and Salesforce.com (CRM, Financial) last year to become the No. 1 SaaS application in the world.
But more relevant to Google’s problem is the fact that Microsoft is creating a “bundled ecosystem” where the customer enters at one point – possibly Office 365 or Azure – and is then presented with a plethora of options to choose from.
In a way, that’s been Amazon’s and IBM’s strategies as well. Amazon lures new customers with attractively priced cloud offers; with IBM it’s the draw of SoftLayer and Bluemix that brings in the crowds. But at the end of the day they provide enough add-on services to keep the customer in.
Google has yet to master that strategy. If it can create such bundles of its own with office productivity apps (Google Drive, Gmail, Hangouts etc) the way Microsoft has done, there’s no reason it can’t attract new customers. The middle market (small to medium-sized businesses) has the biggest potential for such applications yet remains largely untapped.
In addition, it also needs to exploit the advantage of having Google Maps as well as the world's largest mobile operating system Android. Google does sell productivity apps for businesses, but these are typically standalone services that aren’t interlinked in any way.
Let’s look at this from a different angle. If both were restaurants, then Microsoft would be the one serving combos from which the customer can conveniently pick. Google on the other hand would be offering an impersonal buffet – a great spread but no help for a client trying to choose what to put on his plate.
What it really needs to do is exploit the synergies between various components of their as-a-service product line and bundle them as a package for customers.
Synergies do work
Google’s lack of aggressiveness in the sales space is one of its biggest handicaps. Microsoft is an expert at sales, and it shows in its Office 365 numbers. But Google is the one with money muscle as well as maximum reach in the middle market, so why isn’t it where Microsoft is?
It would seem that Google’s biggest weakness is its lack of focus. With most of its time being occupied running its core advertising business, the company has become a Jack of all trades but a master of none.
To its credit, Alphabet has now recognized this problem and is pushing other bets to be more accountable as stand-alone units. Unfortunately, that may not be enough because it’s only talking about the moonshot projects that Google is working on. The parent company has failed to realize that Google’s potentially lucrative Apps business is the one that needs a marketing overhaul.
And that’s the way it stands as of now. The company has some very powerful products that aren’t being synergized properly, and that’s the gist of Google’s struggle with the cloud.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
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