While Google Cloud reported an impressive 53% growth rate for Q4 and an annualized run rate of $10.4 billion, the law of bigger numbers reveals that the only way it can catch #2 Amazon in the cloud is through aggressive M&A.
As the below graphic reveals in detail, even if Google Cloud can maintain growth rates of 40% to 50% for the next 3 years, the gap between it and Amazon’s AWS cloud unit will only grow larger.
If Google Cloud can generate revenue growth averaging about 45% for each of the next 3 years, it will deliver 2022 revenue of about $32 billion—a very impressive achievement.
The problem for Google Cloud—currently #6 on my Cloud Wars Top 10—is that Amazon’s AWS unit already exceeded that projected figure for Google. AWS hit $35 billion in enterprise-cloud revenue last year.
And if over the next 3 years AWS is able to deliver average annual revenue growth of about 30%, then as Google Cloud is posting 2022 revenue of about $32 billion, AWS’s revenue for that same year will be $77 billion.
My guess is that Thomas Kurian did not take the job as Google Cloud CEO a year ago just so he and his company could watch rival AWS outperform it in one of the greatest growth markets in the history of business. And we haven’t even begun to mention the #1 big dog in the cloud, Microsoft. (But the issue of Google Cloud versus Microsoft is one we’ve touched on before, and that we’ll return to another day.)
While everything in this world is possible (although I’m beginning to feel that the prospect of my Pittsburgh Pirates winning the World Series falls outside that claim), it appears that the only way Google Cloud can make a serious run at catching AWS (#2 in the Cloud Wars Top 10) is through acquisitions.
What Might Google Cloud Buy?
In that context, this recent comment from the CEO of parent company Alphabet, Sundar Pichai, offers a compelling perspective on the strategic directions he and Kurian could be plotting for Google Cloud as part of the sprawling Google family.
“Google Cloud works with hospitals and healthcare providers to securely manage their patients’ data—data that is much more secure in the cloud than on paper records or on-premises systems,” Pichai said during Alphabet’s Feb. 3 earnings call.
“Our AI teams at Google also work with partners to apply AI to help them and their patients whether in developing better health systems or helping with the diagnosis and detection of disease.”
Pichai added that two of Google Cloud’s sister companies, Verily and Calico, “are also partnering with industry leaders to use AI and cloud technologies to improve clinical trials, research, and drug development. Our thesis has always been to apply these deep computer science capabilities across Google and our Other Bets to grow and develop into new areas.”
Given that overview, both the parent company and Google Cloud will clearly stay keenly focused on not just leveraging but extending and expanding their strengths in AI and data.
And I’d bet that as Google Cloud looks to use M&A to boost its share and cut into Amazon’s lead, companies with great expertise in AI and data will be key targets.
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