Google and AWS step up public cloud war

Both companies are respected as innovators, both are growing fast and both are targeting the public cloud sector for world domination; who will win the battle?

Following impressive quarterly earnings calls, Google reporting group revenues of $22.5 billion up 23% in constant revenues and AWS $3.2 billion, up from just over $2 billion for the same period in 2015, the fight for the share of the public cloud segment is starting to get interesting. While AWS stole a march on the segment by virtue of being first to offer a mass market offering, Google Cloud has not been shy in making its intentions public.

Although the AWS will not be sweating too much for the moment, the omens are slightly worrying for the public cloud incumbent. Yes, 2016 is likely to be year AWS will breach the $10 billion ceiling, and yes it is far ahead in the market share rankings, however if there is one business which could mount a serious challenge to this dominance, it is Google.

AWS could be its own worst enemy in a way. The normalization of cloud computing has created more competitors, and there isn’t an organization worldwide which has done more in this quest that AWS. The team are also happy to see cloud computing be commoditized as it believes there is more than enough business for everyone to be successful, but if a pricing war is on the horizon, Google’s current momentum could be one of the defining factors.

Google has deeper pockets than most in the technology industry, and has seemingly freed up some cash following its announcement to put the fibre business unit on hold. The team does not appear to be afraid to throw cash as a growing market, but it would appear the fibre unit was asking too much of the generous parent. One area which could make the difference is the growing interest in machine learning.

Last month, the team announced a new Cloud division which would incorporate all cloud offerings from IaaS to enterprise solutions to its consumer artificial intelligence work. Including in this new unit is the machine learning proposition. Machine learning is the facet of AI which has captured the interest of the world in recent months, and there are few companies in the world who boast the same capabilities as Google. Following the Deepmind acquisition in 2014, Google arguably counts the finest set of machine learning engineers worldwide in its ranks.

“We feel well positioned as we transition to a new era of computing,” said CEO Sundar Pichai. “This new era is one in which people will experience computing more naturally and seamlessly in the context of their lives, powered by intelligent assistants and the cloud. This transition is as significant as the move over the last decade from desktops to mobile devices.”

“I would say other areas are hiring across sales, engineering, and marketing,” CFO Ruth Porat added. “And as we head into 2017, I expect cloud to be one of our largest areas of investment and head count growth.”

Google is not only targeting the public cloud segment, but seemingly everything else as well. Google assistant is in the AI game, Nest puts it in IoT, ‘Allo helps it in the messaging segment, autonomous cars have not hit two-million-mile mark of test driving, the open-source Project Accelerated Mobile Pages has celebrated its first birthday, content platforms such as YouTube and Google Play are growing double-digit quarter-on-quarter and Daydream sets its stall in virtual reality.

Google dominates the internet advertising game, and its brand credibility could propel it to the same worldly position as IBM in the 80s, Microsoft in the 90s and Apple in the 00s. The team have also announced plans to expand to eight new cloud regions in 2017, from Mumbai to Singapore to São Paulo to Frankfurt, with more to come. The AWS exec team may have cause to be concerned.

So how has AWS reacted to the growing beast that is Google.

“I didn’t listen to the Google call, but you’ll have to fill me in on that later,” said CFO Brian Olsavsky. “The thing I can tell you about pricing is that our pricing is, price reductions are a core part of our philosophy, of course.

“We had a price decrease in Q3, and that was our 52nd since we started this business. So we are comfortable with price decreases. Not only did we lower the prices of our products but we also create new services that are cheaper that customers can switch to.”

Firstly, if the CFO of Amazon does not know what was said on the earnings call of a company which is more than a serious threat to its fastest growing division, what is this gentleman up to?  Secondly, AWS are seemingly happy to go into a price war, but considering the cash available to its most vocal competitor, it may not be wise to advertise this so loudly.

AWS is still the leader in the public cloud market and this will not change in the immediate future. But a race to the bottom could be a dangerous route for the incumbent to head considering the amount of time Google could sustain a lower pricing point, the cash-cow it has available through tens of billions of dollars of advertising revenues and the vast portfolio of cloud value adds it has available to push up the price point.

Google didn’t get its own way in the fibre market, but it already has a strong position in the public cloud market; there could be some serious problems caused. This is a major challenge to AWS’ leading position, and Microsoft Azure hasn’t even been discussed here. Diversification and parallel offerings have been critical factors in years gone by, which could be a worrying factor for AWS execs considering the expansive positions Google and Microsoft see themselves in.