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Instant Analysis: Amazon Web Services Just Lost a Big Opportunity to Google

By Armun Asgari - Feb 24, 2016 at 7:24PM

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Music streaming giant Spotify has elected to move to the cloud, choosing Google over its current cloud provider.

Source: Google Play.

What happened?
Spotify, the biggest player in music streaming, announced that it will be moving its data centers and technology infrastructure to the cloud, opting to partner with Alphabet (GOOG -0.27%) (GOOGL -0.21%) over the reigning champion, Amazon (AMZN 3.15%). This is particularly noteworthy, given that Spotify already has a relationship with Amazon Web Services, which currently houses the company's music files.

Nicholas Harteau, Spotify's VP of Engineering & Infrastructure, noted the company selected the Google Cloud Platform because of the service's data analytics offerings. He also told The Wall Street Journal that Spotify "negotiated hard on the price."

Does it Matter?
Spotify is an established industry leader with over 75 million active users – it can certainly serve as a posterchild for Google's cloud offerings at a time when it desperately needs one. Despite hosting a few household names such as Snapchat and Khan Academy, the Google Cloud Platform is still a distant third in the cloud infrastructure space, well behind the likes of Amazon and Microsoft (MSFT 1.07%).

Synergy Research Group reported that at the start of 2016, Google controlled only 4% of overall market share, compared to 9% for Microsoft's Azure platform and an astonishing 31% for Amazon Web Services, who counts the likes of Netflix (NFLX 2.90%), Pinterest, and Airbnb among its customers.

But Spotify's decision shines a bright light on Google's biggest differentiator in cloud services – analytics. The company's BigQuery offering allows its enterprise customers to easily manage and interpret data at scale relative to other major cloud offerings. In Spotify's case, that could mean smarter music recommendations or improved radio stations.

For data-dependent companies looking to outsource their infrastructure, those features could be a standout reason to partner with Google, but it's unlikely Amazon is in any danger of losing its throne. AWS pulled in nearly $8 billion in revenue over 2015 at an operating margin of 28.5%. The company is well entrenched as the leader in cloud services.

One more thing to note – Spotify's announcement has reawakened speculations that Google (now Alphabet) is considering acquiring the music streaming company to bolster its own music offerings. Google previously made a bid to acquire Spotify in 2013, but negotiations broke down for several reasons -- most notably that the price was too high.

Editor's note: an earlier version of this article incorrectly stated the revenue generated by AWS in 2015. It has been updated to reflect the correct figure.

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Microsoft Corporation
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Alphabet Inc. Stock Quote
Alphabet Inc.
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Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
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Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
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