Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google is an underdog in the cloud platform market, which is mostly dominated by Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). Earlier this year, Google revealed that its entire cloud business was generating over $1 billion in revenue per quarter.
That figure sounds impressive, but it's dwarfed by Amazon and Microsoft's cloud revenues. AWS (Amazon Web Services), which doesn't offer productivity software like Google's G Suite, generated $6.1 billion in revenue during Amazon's most recent quarter. Microsoft, which owns cloud services like Office 365, Dynamics CRM, and Azure, generated $6.9 billion in commercial cloud revenue last quarter.
Google's cloud business also suffered a significant setback in early July when Google Cloud COO Diane Bryant, who joined the unit last November, abruptly resigned. Some analysts expected Bryant to replace Diane Greene as the cloud unit's CEO, since Greene was reportedly struggling to expand the business.
Despite those challenges, Greene seems optimistic about Google's future in the cloud. Let's take a closer look at the three main goals Greene and Google's cloud execs recently highlighted at Google's annual Next conference in San Francisco.
1. Focusing on the enterprise market
Amazon established a first mover's advantage in the cloud platform market with AWS, which attracted major enterprise customers like Comcast and General Electric. Meanwhile, Microsoft leveraged its enterprise software presence (Windows and Office) to cross-sell its cloud services.
Google lacked both advantages, and fell behind in the enterprise market. At the Next conference, Greene stated that instead of tackling AWS or Azure head-on in the cloud infrastructure market, Google would launch new cloud-based services for specific next-gen niches.
For example, businesses can use its new Contact Center AI platform, which analyzes conversations for hybrid chatbot/human call centers, to streamline customer service processes. They can also use its Cloud Spanner service for organizing databases in the cloud, or its AutoML (machine learning) services to analyze large amounts of data. Google also wants to convince more enterprise customers to migrate from Microsoft's Office tools to its G Suite services.
Trying to carve out niches sounds logical. However, Amazon and Microsoft can also bundle competing services into their cloud infrastructure platforms, which would make it tough for Google to gain a meaningful foothold in the enterprise market.
2. Winning over Amazon's enemies
Greene also announced that Google had secured Target, one of the country's largest retailers with over 1,800 stores, as a Cloud Platform customer. Target's decision to use Google Cloud Platform instead of AWS indicates that retailers that feel threatened by Amazon's marketplace aren't keen to support its high-margin cloud business.
This means that Google has a shot at expanding in the growing retail cloud market, which Mordor Intelligence estimates could grow from $13.2 billion to $40.8 billion between 2017 and 2023. Google also secured Home Depot as a Google Cloud customer in 2016.
However, many retailers are also partnering with Microsoft for similar reasons. Microsoft's list of Azure customers already includes Walmart, Costco, and Walgreens -- so Google could still be considered a distant second alternative to AWS.
3. Moving into on-premise clouds
Generally speaking, on-premise networks run on private clouds, which host data that companies don't want to upload to public cloud platforms. Meanwhile, "hybrid" cloud deployments bridge the gap between private and public clouds, allowing companies to upload some data to the cloud and retain other data within their private clouds.
Private and hybrid deployments are generally handled by enterprise giants like Microsoft, IBM, and Hewlett-Packard Enterprise. However, Google is trying to squeeze into that market with "virtual private clouds" which deploy its cloud services in quarantined areas of a company's on-premise network.
A core part of this effort its the Google Kubernetes Engine, a system that uses the open-source Kubernetes container-orchestration system to isolate certain applications and processes from each other.
Moving into on-premise deployments sounds like an interesting way to counter Microsoft, but Microsoft and Amazon already offer similar services. Microsoft offers Azure Stack as a unified platform for the public and private clouds, and Amazon launched its own "virtual private cloud" service back in 2009.
Still the underdog, for now...
Google is desperately trying to keep pace with Amazon and Microsoft in the cloud market, but its efforts aren't that exciting. Greene recently told TechCrunch that Google was still "playing the long game" in the cloud market, but I think it could still lose the game if it fails to lure customers away from Amazon and Microsoft with innovative new features.