Google (NASDAQ:GOOG) (NASDAQ:GOOGL) recently launched Nearline, a cloud storage service through which businesses can store older data in "cold storage." Amazon.com (NASDAQ:AMZN) targeted the same market by launching Glacier, a similar service, in 2012.
Both Nearline and Glacier's storage services cost a penny per gigabyte. However, Nearline can make old data available within three seconds, while Glacier's data requires three to five hours to "thaw out." Google can do this because it keeps both old and new data within a single system, while Amazon shifts the data between two systems.
Expanding the ecosystem
In expanding their ecosystems, Google and Amazon previously crossed swords over digital media services, app stores, mobile payment platforms, advertising, and even home delivery services. Google believes user dependence on its search engine will drive its expansion into those markets. Amazon is leveraging customer dependence on its e-commerce ecosystem to grow.
The two companies' interest in expanding their massive ecosystems carries over to cloud storage as well. Google sells cloud storage packages -- similar to Dropbox, Box, and Microsoft's (NASDAQ:MSFT) OneDrive -- at highly competitive rates. That serves as the backbone of its Web-based productivity apps on Google Drive. Amazon is less interested in productivity software. Instead, it aims to power companies' websites and store their critical data in cloud-based servers.
Not a major source of revenue ... yet
However, cloud businesses don't account for a meaningful part of Google and Amazon's revenue yet. Google doesn't disclose exactly how much revenue comes from its cloud business, but research firm TBR pegged its value at $1.6 billion for 2014. By comparison, Google's total revenue rose 19% year over year to $66 billion last year.
Amazon's two main cloud services, EC2 (cloud servers with software-as-a-service) and S3 (online file storage), are contained within its Amazon Web Services, or AWS, business. Up until now, Amazon hasn't reported the unit's revenue, which is combined with advertising services and co-branded credit card agreements within its "Other" segment. Analysts at Pacific Crest believe AWS generated about $5 billion in 2014 revenue, which would be a sliver of Amazon's $89 billion in total revenue for the year.
Why everyone is eyeing the cloud
Google and Amazon's estimated cloud revenues aren't impressive yet, but the growth potential is huge -- IDC believes global spending on public cloud service will soar from $56.6 billion in 2014 to $127 billion in 2018.
Other tech giants are expanding into the cloud for similar reasons. Microsoft has dramatically accelerated its expansion into cloud-based businesses including Office 365, Azure, and Dynamics CRM. Last quarter, Microsoft reported its cloud business had an annualized run rate of $5.5 billion in revenue.
IBM (NYSE:IBM) is pursuing a similar strategy, with its acquisition of SoftLayer Technologies and new cloud investments. Last quarter, IBM reported that its cloud-as-a-service revenue had a year-end annualized revenue run rate of $3.5 billion.
Let the "cold war" begin
Within the growing cloud computing market, cold storage services such as Nearline and Glacier will narrow the cost gap between pricier public (online) cloud services and cheaper private (offline) storage solutions.
Therefore, companies that aren't ready to move all of their data to the cloud can upload the older data into cold storage to free up their private storage space. This combined solution, known as the "hybrid" cloud, is expected to be used in nearly half of large enterprises by 2017, according to Gartner.
Nearline will help Google tap into this market while using its APIs as hooks to tether businesses to its productivity apps. That effort will complement its "Android for Work" and "Chromebooks for Work" enterprise initiatives. To help Nearline reach a wider market, Google has partnered with storage companies including Iron Mountain, NetApp, Veritas/Symantec, and Geminare. The Iron Mountain partnership notably lets users send in entire hard drives to be securely uploaded to Nearline.
For Amazon, Glacier complements EC2 and S3 as an all-in-one hybrid cloud solution for businesses. However, Amazon needs to react quickly to Google's attempt to "melt" Glacier, or unfavorable price-to-performance comparisons could soon hurt its business.
Google and Amazon's "cold war" won't impact their revenues in the near term. But the foundations both companies are building today will affect their ability to tap into the growth of cloud services in the near future. For now, Nearline is a demonstration of Google's strategy of stealing Amazon's thunder with more cost-efficient tech, which could eventually throttle the growth of its fledgling AWS division.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Gartner, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Google (A shares), Google (C shares), and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.